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How to Cut Your Insurance Costs

Posted: 12 Nov 2019 08:00 AM PST

Successful entrepreneurs and seasoned business professionals are always searching for new ways to cut down on the costs associated with doing business. If a company can't find a way to do more with less, it's unlikely to endure for long in a competitive marketplace where it's surrounded by savvy competitors. Far too often, however, business leaders fail to pay attention to one key area where they can seriously save money – their insurance costs.

Smart consumers regularly shop around for their best insurance options and search for ways to mitigate their rates. Why should your business be any different? Taking a little time to do the research and look for ways your company can reduce its insurance costs will save money in the long run.  Here's how companies can cut their insurance costs without cutting corners.

Know your options before you commit

The best way any company can cut their insurance costs is by being aware of their options before they make a hefty financial commitment to one particular provider. Failure to do so could land a business in a commitment with a provider that is not cutting them a good deal and getting out of an insurance plan early is often tricky. 

If you're uncomfortable with your current business insurance policies, there's no need to stick around with a provider that generates lackluster results in an important area of commerce. After all, shoddy insurance isn't just something that will drain your accounts every month. In the right circumstances, it could cost you the entire business. Not having adequate coverage is one of the leading reasons small businesses fail when calamity inevitably strikes.

Many small businesses make foolish mistakes, which end up costing them huge sums of money in the long-term while their corporate competitors invest more wisely in insurance. Rather than investing in fleet insurance and providing company vehicles, for instance, some small businesses simply reimburse their employees on expenses for driving personal vehicles for work purposes. While this may be easier for many smaller companies, it's ultimately a policy that could cost them huge sums of money over the years when they could otherwise be saving money by operating a well-covered company fleet.

In general, familiarizing yourself with the differences between fleet and commercial insurance is one of the simplest, yet most effective steps that any entrepreneur can take to mitigate their insurance costs. Company owners who don't know what they're doing when they're purchasing wide-ranging insurance policies for the entire business will end up wasting valuable capital, so don't permit your business to suffer because of your own ignorance.

Companies that get a head start on securing excellent insurance coverage now will be particularly fruitful in a few years, as forthcoming changes to the realm of transportation will radically reshape how insurance policies are administered.

Review your needs and trim the fat

As important as it is to look at your insurance options and what your business needs when choosing the right insurance coverage, it's equally important to take stock on an annual basis. As your industry and business grow, so too will your insurance needs. What worked two years ago may no longer be the most feasible option. 

If a company has expanded its trucking fleet 15 percent over the last year, moved into a new region, or branched out into another service offering, it's very possible it might need modifications to its insurance. Plan ahead and reach out to your current provider to inform them of how your business has changed. 

Take an inventory of your property and assets to determine how much it would cost to replace those assets. You may find that you simply don't need as much coverage as your current plan offers, or on the other hand, that you need a little extra. 

Smart business owners will annually review the current state of their company's insurance needs and look into coverage from different insurance companies. Your current provider doesn't want to lose your business and will likely work with you to meet a competitor's quote. 

Reduce the risks

As technology has advanced, it's streamlined the cost of doing many business operations, but it's also brought new threats into play that didn't factor in as recently as a decade ago. One crucial way that companies can reduce their insurance costs is by reducing the risks associated with their specific line of business. Procedural training, security, and safety review should all come together in an effort to improve how a business functions on a day-to-day basis. 

Company leaders should stay current on new research, trends, and procedures in the field and develop a plan on how to best implement them into the business. Keeping employees up-to-date with proper training can often result in lower insurance costs, as it demonstrates to the insurer that the business is taking measurable steps to reduce its risks.

Aside from implementing employee safety training programs, either developed by the company or through an outside provider, businesses should take steps to tighten up their security. Companies that handle large amounts of client data and those that may use autonomous vehicles or drones in the future are particularly at risk of cyber threats. Robust security procedures should be put in place and employees should be trained on how to reduce the exposure to cybercrime from hackers. 

Whereas this might not have been a major threat even 10 years ago, it's very much a reality for nearly every business. Failure to meet these threats head-on could result in millions in insurance claims and potentially sinking a business for good.   

Protect your assets

Companies that are investing in autonomous vehicles, drone technology, or similar automating tech that enables them to remove humans from workplace scenarios should understand that this doesn't mean they can leave insurance behind. 

Many taxi and trucking companies are eagerly planning around the continued development of autonomous vehicles because they think it will reap huge savings where workers' compensation and employee health insurance is concerned. In reality, however, as driverless cars become more of a reality, they'll need insurance in their own right to avoid liability issues that could jeopardize the wellbeing of the company's assets.

Insurance providers in the future won't want to do business with a company that refuses to properly cover and protect all of its assets. Businesses that employ drones or autonomous vehicles to meet the needs of their customers, while simultaneously cutting down on their operational costs, could find themselves in the crosshairs of liability claims that arise when this tech inevitably fails. 

Much in the same way that good insurance providers help everyday drivers find affordable coverage, insurance providers of the future will find it necessary to help businesses insure their autonomous fleets and keep the cost of covering their drones affordable.  

Cutting down on your insurance costs means understanding that forthcoming technological changes won't necessarily make insurance bills a thing of the past. In fact, those companies eagerly embracing automation because it will enable them to rid themselves of costly human workers and the insurance they demand should seriously rethink how they're approaching the future. 

Keeping your insurance bill low means avoiding situations where your business can be found liable for wrongdoing, and the widespread reliance on technology we're witnessing could end up putting at risk just as many businesses as it helps. 

8 Accounting Tips All Small Businesses Should Know

Posted: 12 Nov 2019 07:00 AM PST

Most small business owners aren't accountants by trade. But whether their background is in product development, HR, management, or anything else, they have to learn the nuts and bolts of accounting.

The good news is that small business accounting is relatively simple. Companies that operate in a single state and have a simple business structure have three accounting priorities: ensure their revenues exceed expenses, keep their books clean and pay their taxes. Still, small business accounting can be tricky for leaders without any sort of financial background. Use these tips to make sure you're on the right path:

1. Keep business and personal accounts separate

One of the messiest accounting blunders small business leaders can make is to mix their business and personal funds. Although plenty of entrepreneurs chip in their own startup money, business revenue and expenses must be kept separate from personal ones. 

The best solution is to start with a sound structure. Establish your company as a distinct legal entity, such as an S Corp or LLC. Open a business checking account as your financial hub, and pay yourself a salary from it each month. Get a business credit card for expenses you can't, or don't, want to pay cash for, and open a business savings account as a rainy day or investment fund. Track any usage of personal items for business reasons.

2. Classify workers properly

When it comes time to build a team, you have two choices: employees or contractors. The IRS considers employees as those who you have behavioral authority and financial control over, as well as a long-term relationship with. Contractors, meanwhile, are people who work for your company on a per-project basis and retain control over their own schedules and business decisions.

Beware that the penalties for misclassifying workers are steep. On top of the $50 for each W-2 form that the employer of misclassified contractors must pay, the employer pays fees of 1.5% of wages and 40% of FICA taxes that it didn't withhold from the employee. The employer must also pay 100% of the FICA taxes that it would've paid per employee. And if the IRS believes the misclassification was intentional, the employer can be fined up to $1,000 per worker or imprisoned for a year.

3. Calculate total labor costs before you hire

If you do decide to hire employees, know that you'll be on the hook for more than just their wages. At least once a month, you'll have to come up with the funds for their benefits and payroll taxes. Those costs add up faster than many small business owners realize. According to an OnPay survey, just 43% of those who do payroll themselves are confident in their ability to pay their employees on time. The rest are either behind on their books or too eager to expand their team.

Don't put yourself in the position of having to cut compensation post-hire. Even if you were generous with your initial wages and benefits, your workers will feel cheated if you pare them back. Small businesses can't afford high turnover, especially among their first few hires.

4. Create profit and loss statements regularly

A profit and loss statement is a staple accounting tool that summarizes your company's income and expenses over a given period. All public companies are required to put them out once per quarter. Although small business owners aren't required to create them by law, P&L statements are great ways to see whether you're on track to meet your financial goals. 

To generate a P&L statement:

  • Total up all the revenue you generated in the quarter.

  • Then, itemize your company's expenses. Break those expenses into two categories: operating expenses and cost of goods sold (COGS). 

  • Subtract total expenses from your gross profit to get your operating profit. 

  • Subtract interest and taxes from that operating profit, and you'll know whether your business operated at a profit or a loss that quarter.
     

Although individual P&L statements are valuable, quarter-by-quarter comparisons are even more important. Are your operating expenses growing? Is your profit shrinking, despite the fact that your sales figures are up? Checking P&L statements against one another yields those sorts of insights. 

5. Always get a receipt

A good chunk of your company's expenses can later be claimed as tax deductions. Bookkeeping service Bench lists 16 categories in which expenses are fully or partially deductible. Everything from meals with clients to ad campaigns to office rent is deductible. In order to claim them, though, you need a receipt for proper tracking and verification.

Donations are one area where small business owners often forget to get a receipt. Although companies of certain structures, such as LLCs and partnerships, can't claim contributions to charities as business expenses, the owner often can. Ask recipients of in-kind donations for written confirmation of the time spent, and use documentation to defend the fair market value of any property donations you make.

6. Keep a close eye on accounts receivable

Although staying on top of accounts payable is important, it doesn't dictate the company's survival like accounts receivables do. If there isn't money coming in the door, then the company can't continue to operate.

Each month, review the percentage and total amount of outstanding revenue. Generally speaking, no more than 10 to 15% of your accounts receivable should be past due. Reach out weekly to those clients. Don't send them to collections on a whim, especially if you want to work with them in the future. But, you also can't let them stiff you.

One solution is to institute penalties for late payment. Set a monthly finance charge of 1% to 2% of the principle. If you decide to charge 2% on an initial charge of $5,000, for example, you'd add $100 to the invoice every month that it isn't paid. Be sure, though, that you tell clients in advance. Not only is it legally important to do so, but the threat of penalties is often enough to dissuade poor payment practices.

7. Stay on top of tax deadlines

As an individual, you pay taxes once per year. Most small businesses, however, have to file estimated quarterly tax payments. Quarterly tax payments are made on two types of taxes: self-employment taxes, which include Social Security and Medicare taxes; and income tax on the profits your company makes. To decide whether you need to pay quarterly taxes:

  • Subtract your federal income tax withholding from the amount of federal taxes you expect to owe this year. If that figure is less than $1,000, then you don't need to make quarterly payments. 

  • Take the total federal tax you expect to owe this year, and multiply it by 0.9. If you've withheld at least that much, then there's no need to make quarterly payments. 

  • Compare your total federal income tax on last year's return to your withholding amount. If it's at least as much, you don't need to pay those quarterly taxes. 


What if you do need to make estimated tax payments? Fourth quarter 2019 estimated taxes are due January 15, 2020. Q1 2020 quarterly taxes are due when most people file their taxes, on April 15. Q2 2020 tax payments are due June 15, Q3 on September 15, and Q4 on January 15, 2021.

8. Set (and stick to) your own payment terms

Big companies commonly pay on net-60 or even net-90 terms, meaning that they actually transfer funds either two or three months after receiving an invoice. Your small business can manage its cash flow by operating the same way.

The key is consistency. Say you pay on net-30 terms. Make clear at the time of service that your vendors can expect you to pay in 30 days. Don't pay early, or the vendor will expect the same next time; don't pay late, or they may not want to work with you in the future.

Accounting may not be the sexiest part of small business ownership, but it's an essential one. Mistakes in your books will come back to bite you. Tax troubles will only get worse. If you're in over your head, call an accountant. There's no shame in asking for help.

How to Increase Your Holiday Sales

Posted: 12 Nov 2019 06:00 AM PST

 

  • 20% to 40% of all sales for many medium-sized businesses come during the last two months of the year. 

  • Segmenting your email list can potentially double your click-through rate. 

  • Online contests are effective tools for lead generation, sales, and engagement during the holiday season. 

  • Reviewing your analytics can help you make informed decisions when planning future marketing campaigns. 

The holiday season is a lucrative one for many businesses. In 2018, shoppers spent 719.15 billion dollars during the holiday season. This year, consumers are expected to spend more than ever before. Black Friday is not just the most profitable shopping day of the year; it's the kickoff to the holiday shopping season. 

Business owners who don't take the time to prepare for holiday shoppers may find themselves at a disadvantage during the final quarter of the year. Here are several ways you can step up your marketing campaign this season for more sales, engagement and leads. 

Optimize for mobile devices

As of July 2019, there were 3.7 billion mobile users. In other words, over half of the population owns a cell phone, and many of those people shop online during the holiday season. The key to creating an effective mobile design for your users this year is simplicity. When someone lands on your website, they should know within seconds who you are, how you can help and why they should care. 

Mobile design goes far beyond the initial appearance of your business; it also includes how your site functions. For example, mobile users are notorious for abandoning their shopping cart if they have to fill out multiple pages to complete their order. 

One way to optimize for mobile is to try and create a simplified checkout page that allows users to browse your store, pick what they want and complete their purchase with minimal effort. 

Plan your content in advance 

One of the biggest problems business owners face during the holiday season is they don't have enough content ready. If you're falling behind this year, don't worry. You can still create all of your email newsletters, promotions, and blog content in the first few weeks of November. But, the sooner your content is ready, the better. 

Consumers now expect businesses to deliver content themed around each of the significant shopping days, including Thanksgiving, Black Friday and Cyber Monday, as well as the entire month of December leading up to Christmas. 

The advantage of planning your content is you'll have more time to build rapport and engage with your audience through your email and social media marketing campaigns. It's not easy to build trust and close a sale in just a few days, but by providing meaningful insight and content early, you're setting the stage for more sales this holiday season. 

Create a staggered schedule where you're sending out emails, uploading new blog posts and updating your business social media pages regularly. 

Host an online contest

Online contests are one of the best ways to grow your business all year long, but it's particularly useful during the holiday months. We know that a majority of the population has at least one social media account. Additionally, we understand that people are more likely to interact with a new brand if there is no financial risk involved. 

In other words, someone that followed your brand on social media, but never made a purchase from your online site is more likely to become a paying customer after participating in your contest. Contest prizes can vary depending on your marketing goals. For instance, you can allow your followers to enter your giveaway by sharing your page with friends, liking one of your posts, or by subscribing to your email marketing list.  

Business owners that want to grow their email list should offer a prize that is relevant for their target audience. Someone with a gardening e-commerce storefront may offer their latest toolset as a potential prize in exchange for subscribing. If your goal is to get more social media followers through shares and likes, use a prize that is both simple and useful, like a $25 Amazon gift card. 

If you want more email subscribers, additional sales, and an increased conversion rate, create an online contest this winter. 

Segment your lead list

Email marketing has the best return on investment when compared to any other form of online marketing. HubSpot reports that the average ROI for email marketing is $38 for every dollar spent. You are going to want to prepare for the holidays by breaking down your lead list based on on-site behavior, analytics and expressed interests at the time the consumer signed up. 

Let's say you are creating content for your e-commerce website that sells pet supplies. Your goal is to segment your lead list into different categories based on types of pets. If a dog owner visited your website and subscribed to your email content, you should put them on a lead list that centers around dog-themed content, like "8 Holiday Foods That Are Not Safe for Your Dog." 

The goal is to deliver content that the subscriber finds relatable. Personalization has a huge impact on consumer behavior and can result in additional sales. If someone sees you only sent them the content they asked for, they are far more likely to visit your website in the future. 

Segmenting your lead list is one of the best ways to improve your sales and click-through rate this holiday season. Email lists that are segmented tend to see a 100% increase over non-segmented lists. 

Review your data analytics

Finally, if you need to make quick decisions about your holiday marketing campaign this year, review your data analytics from last year's holiday season. Social media, email and website metrics can help you identify your strengths and weaknesses by reviewing feedback, sales and product shortage. 

Did you run out of a product last year and lose out on sales? If that item is still popular, or you plan to put it on sale, consider stocking up now, so you don't run out mid-Black Friday when spending typically hits an all-time high.  

What did the customer feedback forms say this time last year? Overcoming your weaknesses is just as important as playing on your strengths. If a majority of your feedback forms complain that the checkout process is too long, you can use this information to plan for a simplified buying process this season. 

The great thing about data analytics is you can compare and contrast information for years to come. After tracking all of your data over several winter seasons, you will be able to make informed decisions about your business, future products and marketing material. 

New Year's Day will be here before we know it. There's no better time than now to start getting ready for the massive influx of new customers that will be ready to spend this holiday season. Winter sales are expected to rise this year, so business owners that plan to reach their target audience need to act if they want to increase their profits. The sooner you start developing your marketing strategy, the better. Start using these tips today to grow your audience, personalize experiences and ultimately close sales. 



 

How to Boost Customer Retention

Posted: 12 Nov 2019 05:00 AM PST

Businesses grow by acquiring new customers, but they thrive by keeping their existing ones happy. Businesses need to put in the effort to retain current customers. Doing so can be even more important than acquiring new ones.

 There is compelling data that backs up the need for businesses to focus on their customer retention strategies.

It's clear that you should avoid getting complacent regarding the customers you have. By using retention strategies, you'll be able to better engage with customers and keep them happy. 

Here are some useful strategies and tools that can support your customer retention goals.

Stay ahead of churn rates

The first step is to know what your churn rate is. Your churn rate tells you how many customers are leaving your site or have stopped buying from you. Knowing your churn rate will help you anticipate changes in your bottom line. It will guide your strategies to boost customer retention. You'll also be able to understand if your customer retention strategies are working by monitoring your business's churn rate. 

Use CRM software

Customer relationship management (CRM) software supports and enables customer retention. Using CRM software will help you track customer behavior over time. It can tell you about their purchase patterns, product usage and when they stop buying from you. You can also track customer service interactions to understand what their problems are. Such key variables of customer behavior can act as warning signals you can use to improve customer retention.

Once you have a clear idea of your customers' behavior patterns, you'll be able to find critical points where they are no longer buying from you. This gives your customer retention strategies a clear direction. You'll also be able to gauge if you're on the right track. CRM supports customer retention in many ways:

  • It plots the customer's journey

  • It enables personalization

  • It provides a centralized database of customer information 

  • It can store details like purchase history, feedback, returns, and more.

  • It monitors customer interactions with your support team

  • It shows real-time data

You need to use your data to understand when customers are at risk of leaving and communicate with them to win them back. You'll get more conversions from customers that know you than by trying to bring in ones who have never heard of you.  

Leverage email marketing

Once you have information that tells you when and why your customers are leaving, you're in a position to target them with emails. Email marketing is the most effective online strategy to create conversions. Integrate email marketing with CRM to send targetted emails to disappearing customers. You can offer them discounts for abandoned products, a free trial, or other offers. 

Use email marketing to follow up with customers that ask for support. Ask customers for feedback, request them to leave reviews online and collect information. Having an email marketing program in place lets you respond to them rapidly. You can create pre-made templates that send content immediately when triggered. It also allows you to personalize your content.  

Add personalization

CRM and email marketing services make it easier than ever to personalize your communication. It gives the impression that your business handles each customer interaction individually. CRM systems store data about purchases, customer preferences and customer support history. You can leverage this data to create content. Launch an email marketing campaign to send timely and personalized content for customers. For example, create a subject line addressing them by name. Customers are more likely to pay attention when they see personalized marketing communication. 

Personalizing your customer interactions creates an incentive for customers to stay with you. They feel as if you care, and this creates a closer relationship with your business. Using personalization improves customer retention rates through improved customer experiences. 

Create customer loyalty programs

By creating a customer loyalty program, you reward the customers that frequently buy from you. It gives them an incentive to continue shopping with you. It also shows them that your business is paying attention. Your CRM system can help you identify the top customers of your business. This lets you know which customers you need to prioritize. You can create specialized loyalty programs for different customer groups and reward your top customers with the most benefits. 

Another way to make customers feel more invested in your brand is to gamify your loyalty program. You often see this with airline businesses that add miles to a flyer's account. You can reward users with points, badges and other means of recognition. It's also essential to offer exclusive discounts and other benefits when customers reach different levels. 

A customer loyalty program can motivate your customers to buy from your brand. This keeps your customer retention rate high.  

Build an online community 

 An online brand community brings businesses and customers closer together. An online community creates benefits in many ways:

  • It creates a space to discuss your brand, products or industry exclusively

  • Users can ask questions and give answers to other members' queries

  • It creates rich discussions

  • You can share events, contests, and other content to get engagement

  • It facilitates the creation of user-generated-content

  • It increases brand loyalty

  • It can reduce expenses due to word-of-mouth marketing

An easy way to set up a brand community online is to use membership site software for your WordPress platform. You can also create groups on Facebook and LinkedIn that foster discussions. 

A great example of the power of community building can be seen in WordPress itself. Its growth can be attributed, in part, to the far-reaching and enthusiastic WordPress community. One of the ways it engages users is by hosting events. Its WordCamp event in 2017 took place in 48 countries and sold 39,625 tickets. Today, the platform continues to grow with die-hard supporters promoting it. 

Building an online community is a powerful way to engage your customers and improve customer retention. 

Improve customer support

Having excellent customer support makes a difference to your business's success. Take advantage of artificial intelligence tools like chatbots to augment your customer support. Using chatbots for minor inquiries can help reduce the time taken to meet such concerns. Information like tracking updates, delivery details, reservations, and more don't need human intervention. Chatbots save time when users need information that can be extracted from a database.

Your live customer support staff can focus on critical issues, giving attention to problems that matter. You'll offer faster support, saving time and resources. A chatbot strategy can improve your customer support and influence a customer's decision to stay with your business. This leads to greater loyalty and improved retention rates.  

Customer retention is about keeping your current customers happy. When done correctly, customers become unwilling to switch to another business. You can make it more convenient for them to stay with you than to buy from a competitor. Successful businesses are the ones that recognize that customers form the backbone of their business. Support your customers with retention strategies, and they'll support you.

 

Credit Card Processing Scams (and Other Things to Look Out For)

Posted: 12 Nov 2019 05:00 AM PST

Credit card processing is essential to modern small businesses. Working with a credit card processor allows you to accept debit cards and credit cards as payment, both at the point of sale and online. As more customers go cashless, credit card processing is increasingly important; it's no longer a matter of choice, but a necessity for most businesses.

However, when choosing a credit card processing company to work with, there is more to keep in mind than rates, terms and conditions. You should also stay on the lookout for one of the many scams and shady practices that plague the industry.

Here are some of the most common scams in the credit card processing industry and how your small business can avoid falling victim to them.

Editor's note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

 

 

Common credit card processing scams

When you are researching credit card processors, there is a lot to keep in mind. Choosing a viable processing partner is a complicated and labor-intensive process that requires you to study multiple pricing models and clearly understand your potential processor's terms and conditions.

The process is made more burdensome by the risks of encountering fraudulent practices or scams designed to rip you and your customers off. But as G.I. Joe said, knowing is half the battle. Awareness of the most common types of these scams can protect you from stumbling into a bad situation.

Low-risk wholesale processing

One of the most common scams you might encounter involves an unsolicited offer of "wholesale processing," typically accompanied by a message that you've been designated a "low-risk" business.

You might receive a message from a credit card processing sales representative that says something like, "Your business has been designated as low risk by Visa and Mastercard. You now qualify for wholesale processing." There are several issues with a statement like this.

First, Visa and Mastercard are not in the business of identifying low-risk businesses. The credit card processors are the entities that determine whether a particular business, industry or product is high risk. For example, Stripe recently began offering credit card processing services to the legal cannabis industry. Since the processor deems that industry high risk, it charges higher rates than it does to businesses in conventional industries.

Most credit card processors and payment aggregators maintain a list of prohibited businesses – the types of companies they won't work with. However, there are no lists of "low-risk businesses," and they certainly haven't been identified by Visa or Mastercard.

In addition, the term "wholesale processing" is vague and leads to another series of questions. Does this refer to interchange-plus rates, a pricing model that leading credit card processors offer to all customers? Does it suggest a membership pricing structure, such as those offered by processors like Fattmerchant and Payment Depot? Or does wholesale processing mean the processor is going to charge you the interchange rate plus the processor's markup? [For more information on credit card processing pricing models, see our buyer's guide on how to choose a credit card processing partner.]

Negotiated lower rates

A similar scam involves an unsolicited message from a credit card processor that suggests it has somehow secured lower rates with the card network and is passing the savings on to you. The message might read, "We have negotiated lower rates with Mastercard and Visa and are prepared to offer you preferred interchange rates."

There are a couple circumstances where a credit card processor might secure lower rates with the card networks, but a message like this (especially unprompted) is typically a red flag. Unless your business processes more than 82 million transactions a year and more than $5 billion in sales volume annually, you would not qualify for lower interchange rates.

The only other way to secure lower interchange rates would be to succeed in a class-action lawsuit against the card networks, and you would certainly be aware if you were party to a suit that large.

Force authorization scams

The force authorization feature allows a merchant to push a transaction through even when a customer's card is declined. Essentially, force authorization enables a merchant to contact a customer's bank and obtain an authorization code to override the decline and continue with the transaction.

However, some customers can use a fake authorization code to shift all the risk of the transaction to the merchant. Typically, a customer will suggest the decline has occurred before and offer a string to the merchant to put in the override field. When entering a fraudulent code, merchants are no longer able to dispute declined transactions. Moreover, they might find themselves on the hook for chargebacks and fines.

Other things to be wary of besides credit card processing scams

The above are examples of outright scams, but there are other common practices throughout the credit card processing industry that you should be aware of. These practices are not necessarily scams, but they can leave you holding the bag all the same.

Application or contract?

Many credit card processing companies require businesses to file an application before partnering with them for debit and credit card transactions. However, this application is actually part of the contract, meaning that if you sign it, you are automatically partnered with that credit card processor once the bank's underwriters approve your application.

To put pressure on you, some representatives will suggest they can't give you a pricing quote until you fill out the application. Others won't fill out pricing information in the application before giving it to you. Generally, the application/contract approach means you won't have a chance to review the entire contract either. A full credit card processing contract includes the application, terms of service and program guide, all of which you should be able to review before deciding to partner with anyone.

Avoiding this trap is relatively easy. Simply refuse to sign anything until you're ready to choose your processing partner. You should also avoid giving out any business bank account numbers until you've made a buying decision.

Rate increases

Another major reason to review the full contract before signing up with a credit card processor is that many allow processors to raise their processor's markup rates at their own discretion. This means they can quote you a low rate to get you to sign up and then quickly hike rates in accordance with the contract you signed.

To avoid unwarranted rate increases, only sign up with a processor that offers (or is willing to negotiate) month-to-month terms. This will allow you to leave a processor that acts in bad faith or renegotiate your terms when the month comes to an end. If you sign a standard three-year contract that includes a rate-hike clause, you are stuck with the processor until the close of your contract – unless you are willing to pay a hefty early termination fee.

Equipment leases

Many credit card processors extend equipment leases to merchants that sign up with them. They often bill these leases as a way to reduce overhead by avoiding the purchase of your own processing equipment. However, point-of-sale systems and credit card terminals are generally not that expensive. Some businesses have ended up paying thousands of dollars for equipment that should only cost a few hundred. The problem is so pervasive that the U.S. Federal Trade Commission issued a warning about it. Avoid leasing your processing equipment altogether; buying it outright is a much better option.

Choosing a trusted credit card processing partner

The best way to avoid falling victim to scams and shady credit card processing tactics is to partner with a reliable processor and do your due diligence in reviewing the contract before you sign it. Always have an attorney look at your contract too if you can, because they might catch certain terms you weren't even looking for. If you need help finding a credit card processor that offers legitimate services and won't give you the runaround, check out business.com's best picks for credit card processing in 2020.
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