Merchandise Finance Charges Explained

A merchandise finance charge is any fee associated with getting credit, borrowing money, or paying back loans. This can include penalties for carrying a balance, credit card interest rates, and foreign transaction fees.

Businesses conscious of their outgoings will be keen to minimise any unnecessary fees linked with financing their business. Making savvy financial decisions as well as choosing the right credit card provider and payment processor will help keep additional charges to a minimum.

What Are Merchandise Finances Charges?

Borrowing money never comes for free—regardless of how you do it. While a bank will charge you interest on a loan, credit card issuers charge businesses finance charges. A finance charge includes any transaction fees and interest you’ve incurred on the money you’ve borrowed, as well as a range of other charges.

How Businesses Trigger Finance Charges

There are various ways to trigger a finance charge on your credit card. Among the most common are:

Carrying a Balance

Businesses that don’t pay their full balance by the due date each month will pay interest on the outstanding balance unless they have a card with 0% APR. However, this isn’t common with business credit cards.

The charge is based on your card’s APR and the remaining unpaid balance. It’s added to your credit card bill, adding to the total you owe. Carrying a balance can happen due to poor planning or lack of funds.

Credit card companies tend to require relatively low minimum payments when compared with balances. Sometimes, the minimum payment will include interest charges while others charge a flat percentage on top of the minimum.

How Can Businesses Minimise Late Payment Fees?

Implementing a few simple, proactive strategies can save your business a huge amount in unnecessary fees:

1) Set up automatic payments: Setting up automatic payments reduces the margin for human error and means you’ll never miss a payment. You can choose to make the minimum payment, the amount charged on your statement balance, or a fixed amount each month. Remember that this approach still requires some attention to detail. For example, you must ensure you have enough funds to cover the automatic payment or risk incurring overdraft fees.

2) Set up reminders: Receiving notifications to your email or phone can prevent the payment deadline from sneaking up on you.

3) Change the payment date: Failure to make minimum payments can happen if the payment date falls at a time in the month when your funds are lower than usual. Your credit card company may be open to negotiating this date.

4) Understand the fees you pay: Check your contract to find out how much late fees are. Understanding the impact of poor financial choices can help you make better decisions going forward.

Transferring a Balance

You can incur balance transfer fees by transferring a balance from one card to another. Interest on the balance could be payable too. Make sure you understand your business cards’ terms before switching your balance to another card.

Making a Foreign Transaction

Foreign transactions on your credit card—for example, in a foreign currency or country—often incur foreign transaction fees. A foreign transaction fee can be relatively high.

That said, cross-border business is common in Europe and in countries with several borders. European Union rules stipulate that banks must charge the same rate for payments in euros throughout the EU as they do for national transactions.

Cash Advance Fees

A cash advance fee is essentially a short-term loan businesses can take from their credit card issuer. In this case, you borrow money against your card’s line of credit. You can get cash advances from an ATM, in person at the bank, or write yourself a convenience cheque.

Monthly or Annual Fees

Familiarise yourself with how much you pay to maintain your credit card and ensure you’re not overpaying on your monthly or annual fee.

Other Business Costs Linked to Credit Cards

Finance charges represent a significant consideration for business owners, but processing customers’ credit cards implicates additional costs, too.

Credit Card Processing Fees

Credit card processing comes with a number of fees that can add up if you don’t shop around for the best deal for your business. When looking for a payment processing company, look for a provider that offers the best compromise between cost and the services your business needs.

Look for the following features from your service provider:

• A merchant services account with an integrated global payment gateway that facilitates payments in different currencies and via different payment methods.
• PCI Level 1 security to secure your customers’ payment data
• Reasonable rates that suit your growing business
• Offers the best payment option for your business. Many new and growing businesses favour a flat-rate payment option that applies to every transaction. This makes it easy to budget and anticipate the percentage of revenue that will go on payment processing fees each month.

Chargebacks

A high credit card chargeback ratio is costly for businesses as they incur fees on top of the costs caused by the chargeback itself. Businesses can lower their chargeback ratio by implementing robust merchant protection from chargebacks to prevent fraudulent chargebacks before they occur.

Look for a merchant services provider with industry-leading chargeback protection and fraud-scrub technology to protect your business from the financial impact of preventable fraudulent activity.

Strategies to Minimise Unnecessary Payment Costs

Credit cards invariably come with some strings attached; credit card finance charges are just one. The good news is that businesses can take steps to minimise unnecessary charges.

Encourage Recurring Payments or Direct Debit Payments

Encouraging your customers to pay for their goods or services via direct debit or recurring payments can reduce what your business pays in transaction fees. Imagine a business with 50 customers that each make a single monthly payment. In this case, your business would pay 50 separate transaction fees. Bunching all the payments on one day would mean you only have to pay a single transaction fee.

Automate Transactions Whenever Possible

It’s a good idea to periodically review your banking practices and assess if there’s anywhere you can make savings. Automating transactions like standing orders and direct credits or debits can save time and money.

Shop Around for the Best Deal

Invest time into ensuring you’re getting the best possible deal from your bank. Research what monthly or quarterly fees each charge as well as other transactions and services. Pay special attention to the services your business uses most.

Remember that a great deal for one business isn’t necessarily good for another. Do your homework and approach your bank for a better deal armed with the knowledge you gained from your research.

Balance Business Costs with Exceptional Service

Business costs like finance charges and payment processing are two of the many outgoings associated with owning your own company. Though avoiding finance charges altogether may not be possible for some businesses, reducing the amount you pay is a realistic target.

When considering how to minimise your charges, start by aligning your workflow with key credit card deadlines and optimising other costs such as payment processing and chargeback fees. These small actions can add up and make a significant difference to your bottom line.