Managing Merchant Fees – Role of Zero Fee Processing

For small companies allowing invoices to be paid with credit or debit cards, the cost of merchant fees can add up quickly—sometimes exceeding 3% or even 4% of your gross sales. Many entrepreneurs simply accept these costs as an expense necessary for your business, especially given the beneficial impact use of cards can has on collections and outstanding A/R.

This general approach is a mistake – all costs must be managed carefully, and a major variable cost of this magnitude directly hits gross margin and impacts the fundamental profitability of your business.

Reducing merchant fees is a large and complex subject with a cottage industry of consultants, alternative processors, equipment vendors, and other service providers catering to small companies with a wide range of methodologies and associated promises.

Here’s an overview of the landscape along with one particular option worth exploring (future articles will go deeper into other options as well).

What Are Merchant Fees?

Merchant fees are the cost associated with credit or debit transactions. Charged directly to the business, the average cost of credit card processing is about 1.70% to 2.50%. In addition to the cost for each individual transaction, it’s common for processors to charge extra fees to businesses for the use of varying processing services.

That said, many merchant fees are unnecessary and not required. They’re simply a way for processors to squeeze extra dollars from unsuspecting businesses. Extra fees get added to your bill, and you just assume that it’s something you have to pay. That’s not always the case.

A list of examples of merchant fees that you may find on your statements is long, including Authorization fees, CPU fees, Gateway authorization fees, Network fees, Access fees, Transaction fees, Adjustment fees, POS fees, WATS fees, AVS fees, Statement fees, PCI non-compliance fees, Batch header fees, Gateway fees, Monthly fees, Annual fees, Early termination fees, Fixed acquirer network fee, and others.

Merchant account providers charge fees to businesses to facilitate payments. The processor is providing you with a service and needs to be compensated for their role in the transaction. However, many processors charge above and beyond what they should be charging.

Merchant fees are negotiable, and many of these fees can be avoided altogether. Again, there is a fair bit of complexity and variability around all this.  For example, you might find a processor that charges 2.9% + $0.30 per transaction, regardless of the card type or transaction environment. Others may charge a fixed rate on top of the interchange fee. Some processors charge monthly or annual subscriptions to access lower merchant fees.

Major Strategies for Reducing Merchant Fees

There are dozens of different ways to avoid merchant fees, but the following major strategies are frequently most effective:

  1. Learn How to Read Your Merchant Statements
  2. Choose the Right Pricing Structure for Your Merchant Account
  3. Reduce Fraud and Chargebacks
  4. Avoid Equipment Leases
  5. Monitor and Audit Your Statements Every Month
  6. Negotiate Merchant Fees Directly With Your Processor

A “deep dive” is appropriate for each one of these core strategies as there are varying levels of relevance and potential impact depending on your specific situation. Small companies need to do their research! Significant fees are involved and this subject has to be a priority for your financial management team.

One specific example tactic aligning with the second and last strategy above is Zero Fee Processing

What Is Zero Fee Processing?

Zero fee processing, also called reverse processing, is a service intended for merchants who spend a significant amount on processing fees when taking credit card payments. This service allows the customer to pay a small service fee so that you receive the entire transaction at no additional costs. By investing in smart solutions and increasing efficiency, you can accommodate all of your customers in allowing them to use their preferred payment method.

When you apply the zero-fee pricing plan, a fixed surcharge will be added to all transactions with a credit card, and the customer will support the service costs.

Zero Fee Processing Vs. Cash Discount Programs

There is some confusion between the zero-fee processing program and cash discount programs. A cash discount plan allows the merchant to add a surcharge for customers who use electronic payment methods. If the customer pays in cash, the merchant waives the surcharge. The surcharge can be between 1% and 4% and is charged at the checkout.

Zero fee processing applies only to credit card transactions. In contrast, cash discount programs apply to all non-cash payments.

Reverse processing programs allow you to save a considerable amount of money by putting a price on high-quality service. Cash discount programs are similar but may only cover a percentage of the various transactional fees.

Many Card Associations have accepted the Zero Fee Program’s efficiency, and reverse processing has become a preferred solution in 40 states.

How Does Zero Fee Processing Work?

Zero fee processing is fairly straightforward to implement and, depending on state laws, can incorporate elements of cash discount programs or surcharging programs. Talking with merchant processing vendors can help clarify and optimize for your business.

Reverse processing can include such functionalities as Next Day Funding, various POS systems, and Tip Options, which work with all types of credit/debit cards.

You can be sure that zero fee processing is 100% compliant with state laws and offers extensive support for all clients. Zero fee solutions allow you to open up your business to more customers by implementing accessibility and convenience at the checkout.


About Scale Finance

Scale Finance LLC ( provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance has multiple offices in the Carolinas including Charlotte, Raleigh/Durham, Greensboro, and Wilmington with a team of more than 45 professionals serving more than 130 companies throughout the region.