If you run or work at a nonprofit organization you know how important it is to cut expenses and manage costs very carefully. There are many ways to save money and one way that you might want to consider is to reduce your payment processing costs.
Accepting donations is the life of a nonprofit. Credit cards, debit cards, PayPal, Venmo and etc. are popular methods for payments for many people. There are several reasons why cash is generally unpopular for donations while credit cards are popular.
Let’s face it. Credit cards are handy and easy for people to use. So your chances of getting donations could be higher when you offer credit cards.
Automated donations are easier to handle and don’t require paper check or cash processing. You may be able to partner with the credit card company or bank that issued the credit card to your donor. What kind of partnering? Well you’re a charity and corporations are looking for good charities to help make the world a better place. So there is likely some form of cooperation you can achieve when the bank or credit card company knows that their customers are also your donors. Let’s list the main points again.
If you are a nonprofit organization, you can sometimes reduce your credit card processing rates just by asking your payment processor. You will need to show proof of your 501(c) status but that’s easy to do.
Credit card processing fees can change a lot depending on the company that does the processing and how the processing is handled by the provider. Most payment providers offer either tiered pricing or interchange-plus (sometimes called cost-plus). What are these again? Let us explain below.
Tiered pricing groups transactions into chunks and charges costs based on which chunk the payment falls into. Typically, you have a qualified tier with the cheapest processing rate, a mid-qualified tier with a slightly higher rate, and a non-qualified tier with the most expensive rate.
Interchange-plus is easier to understand. All card payments are assessed an “interchange” fee. These are fees paid to the banks that issue credit cards to your customers and the fees paid to the credit card companies. Look in our diagram and you’ll see the parties involved in a credit card transaction. You’ll see your customer, you the merchant, bank processor (payment gateway, merchant account provider, payment processor) and then the credit card network followed by the bank. Interchange fees are set and are generally non-negotiable and these fees are paid to the bank who issued the credit card to your customer and to the credit card network. The “plus” is the markup that your payment provider charges for each transaction. It may be a percentage, a percentage plus a flat-rate fee or just a flat-rate fee. So something like 3%, 3% + $0.05, or just $0.10.
If you already accept cards, ask your processor about ways to lower your rates. Tell them that you’re a 501(c) organization and show your documentation that proofs your status. In some cases, you may be asked to renew or extend your contract from its current term to 2 or 3 years. You don’t need to agree to this but it is something that you’ll want to consider.
To maximize your savings, be sure to ask for interchange-plus pricing.
Before you do a new contract, however, you might want to shop around. This is a competitive business so it’s good to see what other processors are offering.
A few merchant service providers work with nonprofits including the processors below:
All of these processors offer discounts for nonprofits.
Before you pick a payment processor you need to think through the things that you need for your non-profit.
Do you accept online donations ? Make sure your merchant account provider gives you the tools to easily set up a “donate” button on your website.
Do you offer honorariums and memorials where your donors can donate in the name of someone else ? If so, you need a checkout option that lets you create fields for that data.
Do you accept monthly or annual donations? If so, make sure your payment processor offers recurring billing.
Do you accept donations face to face? A virtual terminal will come free from many traditional merchant accounts. This allows you to accept payments through your computer and enable to you to accept payments over the phone. You may need a USB card swiper to plug into your computer.
Do you sell merchandise in a store or kiosk? Look for a provider that offers affordable terminals, or the ability to reprogram your existing equipment if you are already doing so. If your team travels a lot or a traditional register setup is too unwieldy, look for a merchant account that offers a mobile payments app. (Or consider using PayPal Here or Square.)
Do you sell products online? If so, you’ll need a payment gateway and e-commerce software that is compatible with your gateway and your website. Fortunately, there are many options here. Some ecommerce software is free and popular. Magento is a very robust and free software and it’s one of our favorites but it’s not for everybody. You may want to go with an all-in-one solution that handles all the ecommerce, web hosting and payment processing for you. A couple of these solutions are Shopify and Volusion.
How do you keep your financial record keeping? If you use QuickBooks, look for a processor that offers QuickBooks integration
If you’re already accepting credit card payments, it’s time to start checking those monthly statements and see what your costs are.
Shop around. With interchange-plus, you can compare processing rates among payment providers. Be sure to look at the average size of your donation when comparing transaction costs. A flat per-transaction fee is expensive for small transactions. A percentage fee can get expensive when your donation size is a larger amount. Another thing to remember is to watch out for monthly fees and try to avoid them.
Finally, beware of putting yourself into a long-term contract or one that includes an early termination fee (ETF). It’s a good practice to get all negotiations you do with a prospective payment processor in writing. This is just good business and clarifies your discussions. Good luck!