Payment processing

Why Credit Card Rates Are Important for Car Dealerships

When it comes to credit card processing, most merchants prioritize low rates above all else. This approach is rarely wise, but it’s easy to see why businesspeople take it. Processing firms usually bill their clients based on a percentage of their overall sales volumes. If a company processes $1,000 in credit card transactions and its rate is 1.75 percent, it will need to pay its processor $17.50. Sounds simple, right?

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It’s not for car dealerships and other businesses that sell valuable merchandise. When an organization accepts credit card payments that amount to hundreds of thousands of dollars a month, it incurs huge fees. Most companies want to avoid these problems at all costs, so they look for processing plans that can accommodate their unique needs.

If you’re a car dealer in search of one such deal, you need to know what your options are. This article will help you understand why credit card processing is so important and how you can get the best value for your dollar.

Profit Margins Are Slim

A reader who doesn’t sell cars may still have doubts about car dealerships’ processing problems. It shouldn’t matter that a business incurs hundreds of thousands of dollars in fees if it sells big-ticket items, this person may argue. High revenue means high profits, his logic dictates.

This person doesn’t understand that car dealerships don’t make much money on each vehicle they sell. Usually, you only walk away with about $1,000 to $2,000 for every product you move. If you allow customers to pay for an entire order on credit, you may incur hundreds of dollars in processing fees. This can quickly put your business in the red, so you need to be careful.

You’ll Have to Limit Customers’ Purchasing Options

Most car dealerships recognize the risks associated with card processing. Therefore, they only allow customers to pay for up to half their orders on credit. That way, the dealers keep more revenue in their pockets and their monthly fees aren’t so high.

This option isn’t without its drawbacks, though. Most dealerships offer financing plans, but if someone wants to put too much of their down payments on credit, you might have to turn them away. These customers may not come back if you force them to wait a little longer, so you can actually miss out on their purchases.

Rates Can Have a Huge Impact on Your Budget

From a budgeting standpoint, processing rates are the worst. Since they’re based on a variable processing volume, it’s very difficult to tell exactly how much you’ll need to pay your processor each month. Sure, you can make a rough estimate, but when resources are tight, it’s difficult to make your numbers add up.

Additional fees don’t help matters. In a given month, you may pay extra for administrative costs, service charges, or even the paper on which your bill is printed. All of these items can drive up your bill and throw off your budget.

You Need to Choose the Right Plan

Fortunately, you have options. All-inclusive pricing plans give you a standard rate you pay each month. That’s it. No extra fees, no complicated statements, no confusion, just the rate to which you agreed. These agreements will help you remain profitable and on budget.

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James Newman

James brings over 30 years of experience in the telecommunications and merchant services industry to his role as Client Relations Specialist for BNA Smart Payment Systems. With a focus on sales, marketing and client services, the last 10 years have been spent with BNA. He has completed over 2,000 hours of professional business training, including professional sales, solution selling, conflict resolution, appraisal workshop, strategic marketing, and financial analysis. Outside of work, James is almost constantly reading fiction. In direct contradiction to this rather silent interest, he took up the guitar six years ago and regularly, happily, and shamelessly destroys the peace and quiet of his family home.

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