Cut the cost of getting paid: understanding the charges tied to payment cards and checks is the first step to saving money.

For a retail business, it's expensive just to get paid for the merchandise you've sold. But the good news is the costs can be reduced and controlled. Payment is received in three forms: cash, payment cards and checks. Payment cards account for more than 30% of all funds received, while the use of cash continues to decline at the same time we are using more electronic checks and fewer paper ones. We are moving to a cashless society.

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Several basic principles can be applied to the acceptance of payment cards and to the acceptance of both electronic and paper checks. First, read and understand your contract with your financial institution and your providers. Most merchants do not have a full appreciation of the charges associated with these activities or of the surcharges they have agreed to in the body of the contracts.

Second, learn to understand the statements you receive from your providers. They contain a wealth of information and are your first line of defense against overcharges and fraud, both within your company and external to it.

Payment cards represent a growing form of payment. They now include traditional credit cards, various forms of debit cards, payroll cards, gift cards and stored-value cards. Currently, the number of credit cards and debit cards being presented are essentially equal. The expectation is that in the future there will be more debit cards used than credit cards.

Most merchants cannot control the type of cards presented for payment or the frequency with which they are presented. However, great care should go into how these payment card types are accepted and processed. Although there are more than 30 variables that should be considered in a processing relationship to help reduce the cost of accepting payment cards, we shall focus on three of the most important: how the business is classified, what types of cards are considered qualified by the processor relationship and what supplemental charges are attached to each transaction.

The first question to ask when negotiating a payment relationship or reviewing your current relationship is how your business is classified. This is important because grocery stores have a separate interchange rate below that of standard retail merchants. Interchange represents the amount of money the issuing bank receives when one of its cardholders presents a payment card. This difference between supermarket interchange and retail interchange on consumers credit cards is a minimum of 30 basis points and 5 cents per transaction. If you did $1 million of credit card sales with an average ticket of $30 in one year, you would save at least $4,667 in processing costs by having your store correctly classified as a supermarket.

The second question is what types of cards are considered qualified. This really addresses the multiple issues of interchange. Between MasterCard and Visa, there are close to 200 different interchange levels. Most relationships are written so that the only card type considered qualified is a consumer card presented for a swipe transaction. All others, such as corporate cards, electronic cards, foreign cards, etc., carry additional charges.

To negotiate the most favorable relationship, the merchant has to drive as many card types to his interchange level as possible. It makes a significant difference, for example, whether a customer pays with a debit card or a traditional credit card. The difference between an offline debit card (no PIN used) and a supermarket credit card at interchange can range from 20 basis points to as much as 100 basis points. It is also noteworthy that the penny cost associated with an offline debit card is more expensive than a consumer credit card supermarket interchange, ranging from 8 cents to a maximum of 30 cents higher.

Using the example of $1 million in payment card sales, if we assume that $350,000 of the amount is offline debit with an average ticket of $30, we could obtain a minimum of an additional $700. This $700 would be offset to various degrees by the amount of penny cost. The savings if an online PIN-driven debit card is accepted are even greater. Online debit cards are charged by transaction count with a minuscule interchange rate attached. The average cost of an online debit transaction is approximately 55 cents, regardless of the ticket size.

The third question is what supplemental charges are you subject to. These can range from batch fees, to late fees, to various non-qualified fees, to statement fees, to penny costs, and the list goes on. The short answer is that every fee attached to your statement should be questioned. When reviewing or negotiating a contract relationship, you must demand from the processor a full and detailed list of all supplemental charges that will be assessed. Do not be afraid to ask for understandable definitions and examples of what these charges mean. Many of these charges and definitions are unique to individual processors. Get the answers in writing.

All of the issues that affect the pricing and risk associated with the acceptance of payment cards also affect the acceptance of checks, both paper and electronic. The recent enactment of Check 21 and the multiple rules for accepting electronic checks require a detailed understanding for the merchant to achieve maximum benefit and cost saving from the acceptance of these payment vehicles.

Ross Federgreen is co-founder of CSRSI, a Port St. Lucie, Fla. provider of financial business services that created the CCASS benchmarking program for merchant services. He can be reached at [e-mail] or [phone], ext 1.