First Month: Merchant Processing

All right, associates, welcome back. We're going to take a moment and talk about the subject of merchant processing for your dental practice. When you buy that practice in your first month, really on your first day, you need to be able to accept credit card payments from your patients. They're going to come in and they might have a Visa card, a Discover card and American Express card. And you need to be able to accept those payments. And when you do, the good thing is that you're getting paid right away. And I would much prefer for you to be paid via credit card than say, an insurance payment where you're gonna have to wait 30 days or 60 days or perhaps even longer to get paid. So credit cards, receiving credit card is an excellent way of getting paid early. The disadvantage is, is that you have to pay a little something in order to receive payment via credit card from your patients. And so you have to engage a company called a merchant processor or a card processor. A merchant processor or a card processor is separate from American Express or Visa or Discover or MasterCard. It is an independent party that plugs into the network of those car of those companies in order to mechanically process payments in small bit in businesses. And they will give you this device, it's called a terminal, and you'll set that terminal. You've all seen it everywhere you go, that's called a merchant terminal. And you're going to need one of those. And patients will swipe their card. And then you update your practice management software. And usually the next day you will receive that payment land in your bank account. That's merchant processing. So let's talk about a few important subjects here related to merchant processing. Number one is that you have to select a merchant processor. And there's a lot out there and they will make a lot of sales pitches to you. Trust me, throughout your life as a dental practice, as a business owner, and I experience it too, you're going to have a lot of merchant processing companies come to you and say, I, I can get you better rates than your current processor. Let me explain it. And most of the time that's a false claim. They're just going to try to present something that appears to be better and sometimes it might be a better deal. So you have to understand the way that they charge when you make this decision. The reason why this is important is because think about how often you're accepting credit card payments. Every day of your career, pretty much or close to it, you're receiving credit card payments and a small difference in the fee you pay. There will add up significantly over time. This is a commodity service, and whenever something is a commoditized service, meaning that the value you receive is pretty much the same regardless of the vendor you choose, when it's a commoditized service, you want to bargain, you want to negotiate that price down as much as possible.

Now, there are pros that you can get a merchant process or a terminal that integrates with your practice management software. And in our next module, we're going to talk about the different practice management softwares. Some of the big classics are Eaglesoft and Dentrix, and there's open dental, there's others. But a lot of those companies have teamed up with a specific merchant processor to create an integration between the terminal and the software itself. So if I'm a patient and I come in and I swipe my card, it will automatically go into my patient record and update or post the payment made. And that way your front office person doesn't need to key in the credit card information, I'm sorry, key in the amount paid and look up the patient and take those roughly, you know, 10 seconds or so to do that. 10 seconds doesn't matter in and of itself, but 10 seconds hundreds and hundreds and hundreds of times over starts to add up a little bit. Plus, it could reduce the amount of errors when entering the data in the practice management software. But keep in mind that at least in this area, it comes with a cost. Not everything value is free. This has got to come with the cost. And the cost can be fairly expensive. You might pick 20, 30% more or even more than that to the merchant processor in order to have that convenience. So you got to weigh those pros and cons. If you can negotiate it down and still get a good rate while having that integration, probably the best of both worlds. If it can be done, and I haven't seen that done, you really have to aggressively negotiate with your merchant processor. Now, the goal that you pay, in my experience and what I recommend, is that you're paying 2% of the overall cost of the total fees paid of your total cards processed, total fees processed from your patients, that you're not paying more than about 2% to the card processor. So if in a given month you process $100,000 on credit card, ideally the amount you paid to the merchant processor is less than $2,000, and you're keeping, you're keeping $98,000 in that example. Let's look at a specific example. Here you can see on the screen is a clip from an actual client's statement from their merchant processor. Because it's like a bank statement almost. You get a statement every single month. And the total amount of sales processed, patient collections processed through the terminal from Visa, Discover, MasterCard and American Express was $74,592.90 you had deposited in your account $72,927.15. Remember, that's the way the merchant processors work is they simply keep what you have to pay them and then they deposit the money into your account. They don't deposit the money into your account and then you pay them. So you paid them 16.65. So what is that as a percent of 74,592? Well, 16.65 divided by 74,592 is 2.2%. I would consider that reasonable. It's pretty darn close to 2%. It's really when you start getting closer to 2.6 to 3% or more, then I'm saying you really need to consider changing your merchant processor or negotiating with your existing merchant processor. Try to be careful about locking into long term contracts. They love to get you long term contracts in order to sort of lock you into a given fee. Now there are two main types of plans that you can enter into contractually with a merchant processor. The first is called a tiered pricing plan, also called a surplus plan. Now the surplus plan works like this. There's this thing called the interchange, which is where all of the credit card companies essentially plug into in order to process credit card payments. And then there's the merchant processor who is the one working with the business to sort of plug the business into the interchange. Now the interchange is going to be paid. Most of what you would pay in that 2% example is going to the interchange. It's going to the credit card companies themselves. But a portion of that it might be, I don't know, 10% of that is going to the merchant processor or the card processor. Now, in a tiered pricing plan, also known as a surplus plan, the way that works is you will pay a different amount based on the type of credit card your patient swipes in the terminal. Some of them are going to be what's called a non qualified transaction. Some are going to be a mid qualified transaction and others are going to be a qualified transaction. Qualified transactions are certain types of cards. Perhaps they have, I don't know, better benefits to the insurance company. Insurance company makes more off the pay off the off the cardholder and they don't have to charge as much to the business. Frankly, I don't even know how that system works. What I do know as it relates to you is that if all transactions were qualified, you'd end up only paying 1.3 to 1.5%. That would be fantastic. And when you are pitched a proposal from a merchant processor, they're often going to highlight what is the qualified rate of 1.3%. And that sounds great. It's lower than 2%. Wes, I found a great merchant processor. Truth is most of these transactions are going to be mid and non qualified transactions and non qualified can get up to three plus percent. And so there's a lot of deceptive sales practices going on in this space of merchant processing. Which is why I recommend the second type of plan known as an interchange cost plus plan. It's a little bit more predictable, I think it's a little bit more clear on how the pricing structure works, works than having the tiered plan. In an interchange cost plus plan you're going to pay that interchange rate, whatever that is, then you're going to pay a little bit more in the cost plus to the merchant, the merchant provider, I'm sorry, the card processor, the merchant processor for what they do. But regardless of the type of card that you accept, it's all pretty much going to be the same.

And it's a little bit easier to understand that type of contract and it's less likely that the merchant processor is going to change or manipulate that. Now this is a little bit outside of my scope and this is from my experience only, but I almost always recommend, in fact I always recommend to go with the interchange cost plus plan and you want to get the cost plus low as possible, maybe what's called 15 basis points or so, I've even seen down to 10 basis points and then they'll usually charge a little bit per transaction. I think it's like a few cents per transaction. But at the end of the day, go with your Interchange cost plus plan. Look at your statements, look at them. Maybe set a recurring calendar every six months or so, get a statement, look just like you see on the screen. Divide, maybe take three consecutive months and divide the total paid for merchant processing by the total amount processed and see where that ratio stands. If it's sub 2 point, maybe 3% or so, even 2.4%, you're probably okay. If it's getting closer to 3%, you need to try to negotiate a lower rate. Now the last thing I want to emphasize is that these merchant service providers will come in oftentimes, try to get you to lease terminal that device and if you lease it you're paying a monthly payment until eventually you no longer have it. So this could be many many years. These things only cost like 3 or 400 bucks maybe 500 bucks. And the new ones called EMC terminals have the chip where it has a chip reader in it and you really need to have a chip reader terminal. And a lot of times they'll try to lease these things for 40 bucks a month or 30 bucks a month. Do the math. It makes no sense. So just buy your merchant terminal or negotiate in that they essentially lend it to you at no cost during the life of your contract with that merchant processor. That's merchant processing. A lot of small but important details. Again none of these things are going to make or break your practice but addressing all of these items in the aggregate can make a really important difference on your practice and merchant processing is one of those.