Today's topic, Monthly Minimum fee on a merchant account.

Many merchant account set ups found today contain a monthly minimum stipulation. What is the monthly minimum? Be sure you find out if the account you are signing up for contains a monthly minimum stipulation, many companies do not disclose this fee. And even if they do disclose it, many companies misrepresent how to calculate this fee!

There is a large misconception that a monthly minimum fee is the amount that you need to charge in a given month. The typical monthly minimum fee today is $25. Many times a business will reply by saying, "so if I charge a $25 transaction I'm good right?" The typical response by the rep is "that's correct" and then they blow over it and move to another topic of conversation. This is NOT correct. The monthly minimum fee is the amount of discount fee you must generate in a month. If you do not generate the minimum, you are billed the difference. Here are a few examples:

1)You are an online based business and you do $2000 in sales and have a $25 minimum:
If your processing rate was 2.29% you would take $2000 x 2.29% = $45.80 in discount fees. Your account generated over the $25 minimum so the minimum would not affect you.

2)You are an online based business and you do $500 in sales and have a $25 minimum:
If your processing rate was 2.29% you would take $500 x 2.29% = $11.45 in discount fees. You would be billed an additional $13.55 to get your account to the monthly minimum level.

3)If you did no business in any given month, you would be charged the full monthly minimum.

It is very important to find out if you are subject to a monthly minimum. For a small business, a monthly minimum negates any rates you may be quoted. On a more important note, if you sign up an account that has a contract term (typically 36 months, the cancellation fee is often calculated by taking your monthly basic service fee + monthly minimum x number of months remaining).

For example, if your account had a $10/monthly service fee, a $25 minimum and a 36 month agreement, and you cancelled after 12 months, your cancellation fee could be $35 x 24 = $840!

In my opinion, there is simply no need for a monthly minimum. However, most accounts that are offered in the market place have them (typically $15 - $25/month). Be sure to find out about this fee before you sign up for a merchant account.

Hope this helps. I'll be back with another topic soon. If anyone would like me to cover a particular topic, please don't hesitate to ask. I'd be happy to share the knowledge that I have about the industry at any time.