The Overlooked Practice Expense
In building a practice, a successful dentist is one that keeps one eye on the practice’s income and the other eye on cutting expenses. This is more important than ever, since the costs of operating a practice continue to rise. A recent report cites that the average overhead of a dental practice is 74%. Ideally, a practice should try to keep overhead between 50% – 60%.1
One line item often overlooked is the fees a dentist pays to accept credit card payments. These costs are easily forgotten because credit card processing statements are often complicated and difficult to decipher. Many credit card processing companies will structure their billing in such a way; it makes it virtually impossible for a merchant to figure out exactly what they are being charged.
Many dentists simply consider the fees paid to accept credit cards are a “necessary evil” and all credit card processing companies are virtually the same. This is not true. There are indeed many fixed costs associated with credit card processing fees. These are the fees assessed by Visa, MasterCard, Discover, American Express, etc. (and there are plenty of them). They will be unavoidable regardless of the credit card processing company used. But again, all credit card processing companies are not the same. Many add a hefty profit margin to the buy rates of these transactions. These fees are often hidden in tiered pricing categories, such as “qualified,” “mid-qualified” and “non-qualified transactions.” It is not uncommon for credit card processing companies to advertise great processing rates (such as 1.69%). What is left unsaid is these rates are only for what are considered “qualified” transactions. Qualified transactions include only certain types of credit cards with low buy rates (such as debit cards and non-rewards credit cards). As soon as a merchant accepts a card that does not fit the category, a high surcharge is added to the cost of the transaction. There are hundreds of different credit card types; all with different buy rates (i.e., rewards cards, mileage cards, business cards, etc.). In most cases, a merchant has no idea what the buy rate is of a particular card they are accepting.
Education is the Key
As in most cases with any industry, educating oneself on the ins and outs of merchant services pricing is the best way to know what the fees are and where money can be saved. Time is usually the enemy in this case because most dentists are already inundated with too many responsibilities. But, there is an easy way to have some control of the costs associated with credit card processing. Have an audit done on the fees! An audit (not a quote) is an effective way to learn which fees are unavoidable and others that may be able to be reduced. Credit card processing companies do not offer independent audits because an audit would expose the profits they are making. Many fees are either deeply imbedded in multiple categories or labeled in such a way as to be difficult to understand. Be sure to work with a reputable company and ask for references. “It is often a surprising revelation to businesses when they learn how much money can be saved in this area. It is not uncommon for a business to save a couple thousand dollars a year or sometimes much more,” says Dale Mullin, CPA and Partner at WDR, LLP CPAs & Business Advisors. “When consulting a client on cutting expenses, credit card processing is one of the first areas we review. We recommend a merchant services audit be performed to all of our business clients,” Mullin adds.
Another way to control credit card processing costs is to demand transparent pricing. Having a detailed and clear monthly statement is a must. Charts and graphs of card activity on a statement are unnecessary and primarily a distraction from the true costs associated with a program. Furthermore, many credit card processing companies provide monthly statements with summaries of transaction activity and/or bulk varying types of transactions together. This makes interpreting costs very difficult. Look for specific information and explanations of charges. If a merchant services monthly statement is not detailed enough, certainly request it in a different format. If the request is denied, it should raise an eyebrow.
Having a merchant services program audited is not an arduous task. In most cases providing a current monthly statement to the auditing firm will provide enough information to conduct an accurate review. Furthermore, changing credit card processing companies is an easy process as well. Most aspects can be handled by an Office Manager or trusted staff member. The small amount of time invested could quite possibly mean large additions to the bottom line.