The ultimate goal of Merger and Acquisitions (M&A) and Venture Capital (VC) firms are to invest in and grow a company and, in return, increasing their profits for an eventual transition or sale.
The entities involved in M&A and VC firms understand the core capacities it takes to increase the profit margins of the company they invested in. They implement new processes, advanced operations, put the right people in the right seats, etc., all with the end goal to improve the business and increase profitability.
Yet even as the primary objective is to make more money, oftentimes merchant processing is overlooked. Instead, it remains a seemingly unimportant facet of the company’s financial activity and remains untouched by M&A and VC firms.
When companies begin their business and sign on with their bank or startup merchant processing provider, they often are told that merchant processing will be covered and handled internally. In the eyes of the business owner, this is great, one less thing to worry about! The reality of the situation is that these big banks and start-up merchant processing providers are handling merchant processing in the most convenient way possible for themselves, which can come at a cost to the business. And not just a small cost, but a potentially very large sum of unwarranted money lost to years of built-up and unquestioned fees.
First it important to understand the different levels of credit card payment processing. There are three levels, Level I, II, and III, which correlate to the different amount of data that is collected and therefore impacts the amount of fraudulent risk.
Level I payment processing requirements consist of: credit card number, expiration date, billing address, and zip code. Level I is typically used for basic transactions when the card owner is physically providing the card at the location of the transaction, such as at a retail store or restaurant. While the amount of risk is lower, simply because the card owner must have the card present and oftentimes needs to enter the pin, the amount of information collected in relation to the payment processing is low, as compared to Level II and III.
Level II payment processing requirements consist of: Level I information plus invoice number/P.O. Code and sales tax amount. For example, Level II is typically used for phone orders when the caller must provide the credit card information to the business in order to complete the transaction.
Level III payment processing requirements consist of: Level I and Level II information plus approximately 26 additional data fields (freight amount, duty amount, product/service ID, product/service description, quantity, item amount, unit of measure, etc.). Level III collects the most information during payment processing, therefore, counteracting the risk associated with processing payment completely online. Online transactions, which most B2B businesses rely on, are inherently at more risk for fraudulent activity because it does not require the physical presence of either the card or cardholder.
Therefore in regards to the B2B companies, if the business is processing payments at Level I or Level II, they are putting themselves at risk since they are not collecting the sufficient amount of information necessary to negate that risk, and are often experiencing much higher rates because of it.
In terms of M&A and VC firms looking for the best way to improve their investments, one of the most simple and straightforward methods is to review and analyze the business’ merchant processing.
Click here to learn more about why using the correct payment processing is important for B2B companies.
In order to gauge if the business is being charged with unnecessary high rates, you can start by following these few steps:
When large banks sign on a merchant and start running their credit card processing they are often doing so without being checked and reviewed by the merchant. Therefore that business is blindly trusting their bank to be processing their credit cards in the most efficient way, which unfortunately is not always the case.
Instead, the merchant can unknowingly be facing increased fees as the banks increase rates year by year. This can result in a tremendous amount of money simply lost to avoidable fees that instead could be contributing to the merchant’s profit margins.
Having a merchant processing partner that frequently reviews a company’s statement, such as quarterly reviews, allows them to quickly catch any arising changes or fluctuations. For example, some businesses may accept significantly more credit card transactions in a certain month(s), therefore opening the possibility to further reduce fees. Yet, this can only be accomplished through ongoing analysis, which a dependable merchant processing partner should provide.
In order for M&A and VC firms to be successful, they need to use all the tools in their toolbox to improve and advance their business investments, which needs to include merchant processing analysis.
Evolve Payment is a merchant processing partner based in St. Paul, Minnesota serving clients on a national scale. We have been providing payment solutions for almost 20 years and have built our services by caring for the success of our clients by uncovering hidden fees and providing trustworthy solutions.
To receive your free personalized quote, we require 3-months of merchant processing statements. Within 3-5 business days, we will examine the statements and provide a complete analysis comparing your current true net effective rate with our proposed net effective rate, ultimately outlining the savings you would receive by partnering with Evolve Payment.
To learn more or to receive your free quote, get in contact with the team at Evolve Payment! We look forward to working with you.