Your clients want to use their credit cards.
When deciding to accept credit cards, it’s important to keep in mind that different cards carry different processing rates. The key to maximizing profits while minimizing fees is to carefully study what kinds of cards clients want to use and how those fees affect a firm’s bottom line. Credit cards are here to stay, and firms that accept credit cards generally see a decrease in year-end write offs and a better cash flow.
Cards are Convenient
Most Americans have at least one (and often more than one) credit card, and for many, it’s their favorite way to pay. Credit cards are easy to use, often earn the user points or perks and can be a safety net for unexpected expenses. They’re easy to use for customers, allowing for immediate payment in person, over the phone or remotely with secure invoicing. Businesses, too, benefit from accepting credit cards. Most importantly, funds are quickly processed and deposited into business accounts.
The best credit card processing solutions integrate directly with a law firm’s existing accounting software. When integrated, there’s no need to manually input card information. Plus, these are proven technologies, and set up and integration takes as little as an hour or two before payment processing can begin. This convenience comes at a cost, though: credit card processing fees. They’re a necessary part of doing business with credit card companies, usually between two or three percent of each transaction. By being selective about which cards are accepted, law firms can minimize fees and save hundreds or thousands of dollars each month.
Credit card commercials show deals offering cash back, travel points, gas discounts and all kinds of other perks to get users to sign up. These perks are great for credit card users. However, the cost of these perks is paid for, in part, by card processing fees charged to the business accepting credit cards. Processing fees vary by card issuer.
There are four major credit card brands: Visa, MasterCard, Discover and American Express. Visa, MasterCard and Discover make up 80 percent of total credit card spending. These companies run on open networks with a wide variety of issuing bank partners. Because of the scale and scope of these networks and transactions, processing fees are as low as possible for merchants. But things get a little trickier with American Express. American Express accounts for only 10 percent of total credit card spending (though consumers are more apt to use this card when they can, because of the better perks it offers).
What matters more to law firms accepting payments, though, is that the average processing fee for American Express is much higher than Visa, MasterCard and Discover. Visa, MasterCard and Discover usually charge businesses a rate of about 2 percent per transaction.
An American Express fee is typically 2.89 percent for a similar transaction. While this difference is less than one percent, for a business that processes $600,000 per month in credit card transactions (like the AMLAW 200 law firm profiled below), those fees add up to thousands of dollars per year. “We’ve seen it many times with our customers,” Ryan Beck, general manager of ClientPay, says. “Making adjustments to the types of cards they process, including limiting American Express transactions, can often save a lot of money in processing fees.”
Limiting accepted credit cards to only Visa, MasterCard and Discover will minimize processing fees. Some firms might be worried about losing American Express card holders, but they shouldn’t be. Nearly all American Express card holders also carry a Visa or MasterCard. Unless a business is in a retail situation, it won’t see any significant loss by not accepting American Express.
Credit card processing rates are determined, in part, by how much information is provided to the credit card company. This process is built into the software provided by the credit card processor. And it makes sense.
Card brands love data and the more information a user supplies (credit card number, expiration date, verification code, billing zip code, etc.), the less chance there is for fraud related to the transaction, and the less cost that’s associated with the transaction for the processing company. What some firms don’t realize, however, is that there’s much more data that can be sent to the credit card processor to get even lower rates, including items such as merchant commodity code, invoice numbers, tax information and even shipping dimensions and weights.
For law firms, many of these extra information items never change. The data points can be automatically sent along with all transactions, lowering processing rates significantly. When a firm selects a credit card processing service, such as ClientPay, that maximizes the level of interchange optimization, processing rates are kept as low as possible.
Using a credit card processing solution that integrates directly with existing accounting software saves time. Client information is auto-filled from invoices, credit cards used previously are held securely on file, and payment can be as simple as verifying which card the client would like to use and authorizing payment. Card approval is instantaneous, and the money is on the way to the firm’s accounts within days. Some processing solutions take this a step further, allowing split payments on different cards and automatic billing and payment plans.
Of special interest to law firms, however, is the ability for a client’s payment to be split into trust and operating accounts to avoid commingling funds when setting up retainers. There are only a handful of law firm-specific solutions available, including the award-winning ClientPay solution, the exclusive payment partner of Thomson Reuters Elite.
Analyze Your Costs
Because of all of the variables associated with processing credit cards, total processing costs can vary from card to card and service to service. Dedicated credit card processing companies can offer more competitive rates and better support than banks. In fact, many banks outsource credit card processing to a third party processor (and pass along a markup to their customers).
Regularly reviewing credit card processing rates is a must, and partnering with a dedicated law firm credit card processor can really help a law firm stay on top of its bottom line.
How to Ensure Lowest Rates:
- Carefully choose which cards to accept.
- Utilize interchange optimization.
- Integrate for payment automation.
- Review your costs regularly.
Interested in learning more about how accepting credit card payments can improve your firm's bottom line? Get in touch with the law firm payment specialists at ClientPay.