A Guide to Restaurant Payment Processing

You may be just starting out or perhaps you're looking for a new processor because you want lower rates, fewer fees or you're dissatisfied with your current one. Either way, you're in the market for a payment processor, and you'll find the best, most affordable one by carefully considering multiple companies.

For the uninitiated, payment processors are services that help you accept payments made using credit, debit and EBT cards. Most companies offer multiple processing methods so you can accept credit cards in your restaurant and on your website as well as on the go if you offer delivery service. It usually takes one to two days to set up your account and at least a week to receive, set up and test your equipment. Once you begin processing, funds are typically deposited into your account within a few days.

How to Choose the Best Payment Processor for Your Restaurant

Finding a processor for your restaurant is by no means a simple task. There are many to choose from, rates vary greatly and service terms are often difficult to decipher. If you already own a point-of-sales (POS) system and aren't looking to upgrade it, you'll want a processor that can work with your current system.

Consider Multiple Credit Card Processing Companies

We recommend researching three to five processors before making a decision so you can choose the company that provides your restaurant with the best credit card processing service at the best price. Although it's a significant investment of time, choosing the right company will save you money and frustration. Here are some tips to help you gather a list of processors

Talk to fellow restaurant owners

Ask peers what experiences they've had with the payment processors they've worked with, what their rates are and whether they were able to negotiate better rates or terms.

Research providers online

Find reputable reviews online. When reading consumer reviews, keep in mind that people are more likely to post comments when they're upset rather than when things are going smoothly.

Look beyond your business's bank

Your bank may be able to provide reasonable processing rates and may be convenient to work with, especially if you have a good relationship and history with them. However, you're likely to get better rates, terms and service from companies that specialize in credit card processing.

Editor's Note: Looking for credit card processing for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of processors for free:

Consult with your POS service provider

If you already own a restaurant POS system, talk to your representative about what services are compatible with your system and which ones they recommend. Keep in mind that many POS providers offer credit card processing and your system may only work with their service, in which case, you may have to wait until you're ready to upgrade your equipment before you can switch processors.

Gather Information About Your Restaurant

Before calling credit card processors for pricing quotes, you need to have a clear picture of what services you need from the company. You also need to be prepared to answer questions about your business, as the processor's account representatives will ask you several questions to help them understand your processing needs so they can provide you with a pricing quote.

Monthly sales volume

Some credit card processing companies consider your monthly sales volume if they provide custom price quotes. Other companies require you to process a certain dollar amount each month in order to qualify for an account. If you process below this amount, the service may refer you to a different processor. Others may not have a volume requirement but may have a monthly minimum fee you must pay if your processing volume is low.

Average sales ticket size

If a processor offers multiple pricing models, knowing the average size of your sales tickets helps the rep determine which pricing model may be the most cost-effective option for your business.

Your credit

As with most business relationships, you'll have better options if you have good credit and a proven sales record. If your credit isn't great or you're just starting out, some companies may refer you to other processors or charge higher rates until you improve your credit or establish a processing history.

How you accept payments

Processors have different rates for card-present and card-not-present transactions. If you accept credit cards both in your restaurant and online, you'll need pricing quotes for both acceptance methods.

Your processing equipment needs

If you need new or updated equipment, the account representative can provide you with a quote. You want to consider how many credit card terminals, card readers or POS systems you need for your restaurant. If you already own a POS system, you need to verify that it's compatible with the processor.

Look for Optimal Processing Terms

No matter which credit card processing company you choose, you want flexible terms that give you the freedom to switch services if you find better pricing or service elsewhere. You also want to avoid nonstandard fees. The best credit card processing companies offer

Month-to-month processing agreements

The best credit card processing companies have flexible terms that allow you to cancel your service or change processors without incurring expensive early termination fees. Long-term contracts are problematic because if you're dissatisfied with service, if your rates increase or if you close your restaurant, you may have to pay an expensive fee to exit your contract.

Rate-lock guarantee

Most credit card processing contracts reserve the right to increase your rates at will. A rare few, however, have a rate-lock guarantee that promises to keep your rates the same for the life of your account. If this isn't offered, it's all the more important to have a month-to-month agreement so you can shop for better rates, if needed.

No setup or application fee

Most companies no longer charge these fees, but some do. It's worth your time to ask so you aren't surprised by extra fees when you get your first bill.

The ability to purchase unlocked processing equipment

Credit card processing companies often offer equipment leases or have "free" equipment-placement programs. Although such arrangements may be less expensive upfront, they're much more expensive long term. The most cost-effective strategy is to buy your equipment outright, even if that means you use basic equipment until you can afford a more advanced system. The equipment should be "unlocked" so you can use it with any processor, rather than a "locked" or proprietary terminal you can't use if you switch processors.Call for Pricing Quotes & Request Contracts - As mentioned above, when you have good credit and a proven revenue history, you're in a good position to negotiate rates. The credit card processing industry is extremely competitive and companies will vie for your business.

Take your time when shopping and make sure each potential provider clearly explains its rate structure and fee schedule. Call multiple processors and plan to spend at least 20 minutes on the phone with each one discussing rates, fees and service terms. If, from your conversation, you feel the company may be a good fit for your restaurant, it's important to request a written pricing quote and a complete contract (application, terms of service and program guide) to review.

Don't provide your Social Security number or bank account data, or sign the application until you're ready to sign up with a company. Some may use this information as consent to set up an account, because the application is actually part of the contract. To help you know which questions to ask when speaking with processors, print out our worksheet, How to Negotiate with Credit Card Processing Companies, to use as a guide.

When you're on the phone with account representatives, evaluate them for their thoroughness, patience and product knowledge. Remember: You may be working with this company for a long time and these providers are, in a sense, business partners. Therefore, you should evaluate the relationship seriously at the outset.

If you process less than $3,000 each month, if you're launching a new restaurant and you don't yet know what your monthly processing volume will be, or if your restaurant is seasonal, a flat-rate processor such as Square or PayPal may be a good option. If you have poor credit, Payline, National Bankcard and CreditCardProcessing.com are good credit card processing companies that accept a high percentage of applicants and are willing to work with businesses like yours.

Avoid Common Pitfalls

Selecting the wrong processor can be an expensive mistake. If you've done a bit of online research, you've likely seen volumes of negative reviews, so finding a good processor may seem challenging. However, this is why it's important to call multiple companies for pricing quotes and read the entire contract before signing up with a company. It's your chance to verify that the information you were quoted over the phone is correct and that there aren't any additional fees or terms that will surprise you later on.

Most contracts have three parts: the application, the terms of service and the program guide. In evaluating processors, we've seen cancellation clauses tucked into the program guide (which sometimes isn't even sent to you until the company ships your equipment) and sections notifying you that you have 30 days to opt out of additional services, hidden in tiny print on the last page of the application.

Based on our years of experience, here are the areas you need to pay close attention to:

Long-term contracts. It's not as common as it used to be, but some processors require you to sign a contract lasting three years or more. Additionally, some contracts renew automatically for additional two-year terms and you only have a 30-day window to exit your contract without being charged hundreds of dollars or more in early termination fees and liquidated damages, which is money the processor would have received from you had you finished your contract.
Additional services clauses. Some contracts automatically enroll you in a "club" or sign you up for "additional services." You typically have 30 days to opt out, but if you don't, you may get stuck paying for services you don't want or need.
Free equipment or free equipment-placement programs. Some processors advertise free equipment if you sign a contract for a one to three-year term. However, this equipment can include monthly insurance or service fees, and most require you to return the equipment at the end of the term. Some merchants report that when they tried to quit their contract early, the company charged them for the full price of the returned equipment, stating it was damaged. It's difficult to prove whether the hardware is damaged or not after you've returned it. You'll likely save money in the long run by purchasing hardware up front.
Equipment leasing. Rarely is leasing processing equipment a good idea. Most leases have non-cancelable, four-year contracts. In most cases, you'll pay much more for the equipment over the course of the contract than you would if you purchased it. Plus, at the end of the term, you have to return the equipment or pay even more to purchase it. In most cases, there's no way to exit the lease early. Even if you close your business and return the equipment, you're responsible for paying out the remainder of the lease.
Starter rates. Some credit card processing companies advertise very low starter rates but fail to reveal their full rate schedule. These companies use a tiered pricing model, and the starter rate usually applies only to regular debit cards that you accept in person. Other types of cards have higher rates. For this type of pricing model, it's important to ask how many pricing tiers there are, what they cost and which types of cards and transaction methods apply to each. Although tiered pricing can be a good option for restaurants that accept a high percentage of regular debit cards, industry experts recommend interchange-plus pricing for most businesses.
Nonstandard Fees. Most credit card companies charge several standard fees, including a monthly fee, a monthly gateway fee and an annual PCI compliance fee. However, some companies charge other fees that aren't common among processors. Fees to watch for include application, setup, annual, customer service, IRS reporting, online reporting, semi-annual postage and handling, and quarterly technology fees. If you see a fee in the contract or on your bill that you don't understand, ask your account representative to explain it to you and request that it be removed, if possible.

Make Your Decision

After you've called multiple credit card processing companies, requested pricing quotes and read full contracts, you should feel confident choosing the processor that's the best fit for your restaurant.

Once you submit your completed application, the company can approve it, set up your account and ship any equipment you purchased. If you've taken care to choose a company with month-to-month service and if you've purchased unlocked equipment, you have peace of mind knowing you have the option of taking your business elsewhere if services don't meet your expectations, if your rates increase or if you find lower prices elsewhere.