Wilson McManus II, DVM CVPM & Kris Smith CVPM ~
Many of today’s veterinary hospitals can receive up to 80% of their payments for services and products electronically by credit card, debit card, or app-based payments. This percentage could be even higher in the coming years as fewer clients carry cash or elect to pay by check. Banks issuing these cards have made them very attractive in an effort to capture more of the credit card business with travel, cash, and merchandise rewards. You name it, and the credit companies will offer it to get our clients signed up for their cards. The cards are convenient, and they feel they get “something for nothing”.
The big problem is, just who is paying for all of those rewards? The unfortunate answer is, WE are, the merchants. We pay for them each month through our merchant services fees that are deducted from our bank account.
High merchant service fees associated with rewards-based cards really cost us, the merchants, in two ways: initially through a decrease in our profit margin and subsequently through a decrease in our practice value when it’s time to sell.
This simple practice management example compares two practices, both processing $1.0 Million of their revenues annually through credit card charges. In Practice A, merchant service fees total 3.0% of the total billed through merchant services, so essentially, they are paying $30,000 annually in merchant fees. Practice B negotiated a lower rate on its merchant service fees of 2% of the total billed through their merchant services, it pays $20,000 annually in fees, which essentially adds $10,000 annually to the profit of the practice if all other expenses remained the same. From a practice valuation standpoint, the $10,000 saved by Practice B could equate to $40,000-80,000 of added value to the practice’s value. Obviously, if your credit card billing is greater than $1.0 Million annually, the savings through a lower rate will lead to even more profit and subsequently a significant increase in your practice’s value.
When most veterinary practice owners, accountants, and bookkeepers look at a monthly merchant service bill, it is very confusing, and often difficult to determine the true effective monthly rate that the practice is being charged. The majority of the confusion comes from the different charges equated to the different levels of rewards that clients’ cards provide. Though you think you are receiving a base rate of 2.0% on your monthly credit card business, the reality is that depending upon the mix of different types of cards being used in that particular month, the fees you pay can often be significantly higher. We recommend to all of our management and appraisal clients that they calculate the total amount of fees charged on their monthly merchant service fee statement and divide it by the total dollar amount of transactions processed by their merchant services company. This percentage gives them the most accurate assessment of the true total cost of accepting the various levels of cards. As you would expect, the higher the rewards, the more the fees are hitting your bottom line.
Often these higher processing fees can also be due to the use of “integrated” processing, where the practice management software and the credit card processor are tied together. While integrated card processing tends to be both more accurate and less labor-intensive, the convenience and labor cost savings can be translated into higher processing fees. The software vendors offering this type of service often do not allow for the use of an integrated third-party processor. They essentially force practices into accepting only their processor(s), eliminating the ability to shop the merchant service for better rates. Practices can use the third party, but they aren’t allowed the benefit of integrating with the software.
We also recommend evaluating the cost of accepting higher-cost cards and payment methods such as American Express, Care Credit, and Snap Pay in your hospital. It is important to set strict guidelines in your practice for situations that warrant the acceptance or denial of these types of payment.
Personally, we all know it’s hard to pass up using a reward card when we are at the checkout. But as a merchant, it is best to direct your clients to other methods of payment if possible, to help reduce the hidden cost of accepting these cards. Prepare a script for your receptionist to the effect “would you like to pay by cash, check or debit card today?” Something as simple as this can often decrease your monthly expenses. It is also in your best interest to regularly shop the various merchant service providers to ensure you are receiving the lowest rate possible. Also avoid long-term and automatic renewal contracts, as they can contain hidden fee escalators that are hard to identify in the contract. We find that utilizing a merchant services company that has negotiated preferential pricing through a professional cooperative or buying group will have already negotiated the lowest rates for the group.
Though the savings to many may seem small, when applied to larger and larger volumes of business and credit card processing, the cost to practices’ profit and future value can be significant.
For more information regarding Practice Management, Practice Valuations, or Sales, please contact Wilson or Kris at email@example.com