Information on Merchant Accounts,
Ecommerce and Credit Card Processing

September 20th, 2023 by J B

When it comes to payment processing what are Monthly Minimums?

Filed in: Merchant Accounts |

As a business owner, navigating the world of credit card processing can be a bit like deciphering a complex code. One of the puzzling terms you might encounter is the “monthly minimum fee.” Don’t fret – we are going to shed some light on this often-misunderstood aspect of payment processing.

Understanding Monthly Minimum Fees

When you set up a merchant account to accept credit card payments, you’ll encounter various fees. Among them, the monthly minimum fee plays a unique role.  Simply put, it’s a fee that safeguards the payment processor from losses on accounts that process little to no volume every month, but more on that later in the article.

Here’s how it works:

  1. Setting the Threshold: Your credit card processor will specify a minimum dollar amount that you must reach in transaction processing fees each month to avoid incurring the monthly minimum fee. This threshold varies between providers but typically falls within the range of $25 to $50 per month.
  2. Monthly Calculation: At the end of each month, your processor calculates the total transaction processing fees generated by your business. If this amount meets or exceeds the minimum threshold, you won’t be charged a monthly minimum fee.
  3. The Safety Net: Here’s where the monthly minimum fee acts as a safety net. If your total processing fees for the month fall short of the minimum threshold – let’s say you had $0.00 in fees – you’d be billed the full monthly minimum amount. However, if you generated $20.00 in fees and your processor set a $25 monthly minimum, you’d only be charged the additional $5 needed to reach the minimum threshold.

Why Monthly Minimum Fees Exist

You might wonder why these fees exist in the first place. Well, they serve a couple of important purposes:

  1. Provider’s Operational Costs: Credit card processors have their own costs to cover, including customer support, account management, and maintaining the infrastructure that facilitates credit card transactions. The monthly minimum fee helps ensure that all accounts are covering the costs of maintaining an open account.
  2. They can Reduce Fixed Expenses: Fixed expenses like service fees or statement fees stay the same month to month regardless of processing volume.  Monthly Miniums are sometimes used to lower or eliminate fixed monthly costs on a merchant account.  Since the Monthly Min decreases based on volume it can be more cost effective depending on your processing volume.

How to Approach Monthly Minimum Fees

Now that you understand the basics, here’s how to approach monthly minimum fees:

  1. Read Your Agreement: Carefully review your merchant account agreement to understand the specific terms and conditions related to monthly minimum and fixed monthly fees. Different providers may have different thresholds and fee structures.
  2. Consider Your Business: Think about your business’s transaction patterns. If you consistently process a high volume of credit card payments, you might be better off requesting a higher monthly minimum to remove fixed monthly fees or to even get a discount on your processing fees.  If you are processing sporadically or with very low monthly volume, you might prefer to have smaller fixed monthly fees, but pay a little more per transaction.

In conclusion, monthly minimum fees are a mechanism to ensure a minimum level of revenue for your credit card processor and can help provide stability in your payment processing expenses. By understanding how they work and considering your business’s unique needs, you can make informed decisions that benefit both your bottom line and your customers’ payment experience.

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