How to Identify and Avoid the Hidden Fees of Legal Credit Card Processing

How to Identify and Avoid the Hidden Fees of Legal Credit Card Processing

If you’ve ever suspected that your credit card processing statement is more expensive than you thought it would be, it may not be your imagination. Since lawyers spend most of their time actually working for their clients, they have little or no time to check the costs associated with legal credit card processing.

Because of this, lawyers tend to pay an incredible amount of hidden fees. While accepting credit cards in your law firm will definitely help your business in the long run, it’s important to understand what you are paying for. In this article, we help to break down some of the confusion behind legal payment processing, including how to identify hidden credit card processing fees, and how to ensure you’re using the best legal payment processing company for your law firm.

Why Is Legal Payment Processing Different Than All Other Businesses?

Law firms normally work with two different kinds of accounts: trust accounts and operating accounts. The trust account is for client funds only, while the operating account is where the law firm keeps its money.

It is imperative that you work with a payment processor that clearly understands the difference between funds that are meant to go into your trust account and those meant for the operating account. Any mistakes involving the setup or deposits into these two accounts can jeopardize your license.

If you use a legal practice management software, it would be best to look into a payment processing company that can properly manage your law firm’s payments. For example, Rocket Matter’s online payment processing (Rocket Matter Pay) is powered by LexCharge, one of the leading payment processing companies in the legal industry. It ensures that no processing fees come out of your trust account, keeping your firm in IOLTA compliance.

Legal Credit Card Processing Rates Explained

Credit card rates can be confusing. A rate is defined as the amount a credit card company or bank charges for a specific transaction. Most people assume that only one exists, but in reality, every single transaction has a different wholesale price (or interchange rate) associated with it depending on the card type and how the transaction is processed.

Also, many credit card companies will offer a low introductory rate (or base rate), which may seem too good to be true! They will then hit you with “downgrades” or penalties that must be paid, often without you realizing it.

For instance, if a client transacts with a credit card that complies with the processor’s rules, it is called a qualified transaction and has the lowest rates. There are also other types of transactions, including “mid-qualified” and “non-qualified”. For these transactions that do not completely follow the rules, you can possibly incur some of the hidden fees mentioned below.

The worse part about hidden fees is that you may not see this difference on the front-end (especially if you have flat-rate pricing), but these charges will definitely reflect on your bottom line.

Hidden Fees of Legal Credit Card Processing

In addition to the interchange fees and basis points, law firms incur about 10-15 other categories of hidden fees. They include:

  • Transaction fees
  • Retrieval fees
  • Chargeback fees
  • Gateway fees
  • Monthly fees
  • Return fees
  • Discount rate fees
  • Risk assessment fess
  • PCI fees
  • Regulatory fees
  • IRS fees
  • Annual fees
  • Voice verification fees
  • Account on file fees
  • Corporate card fees

Many of these fees are unnecessary and can be avoided. For instance, you can scan your account every year to ensure that you’re PCI compliant and that your payment system is secure to avoid PCI fees.

Also, consider the following scenarios that are notorious for incurring additional fees:

  • High-risk transactions
  • Smaller than average transaction sizes
  • International transactions
  • Downgraded transactions
  • Manually keyed-in transactions
  • High processor markups

How to Tell if You’re Being Charged Hidden Fees

Most credit card statements don’t even show some of the hidden fees; the only way to know what fees you’re paying is by calculating your effective rate, which is your total processing fees divided by the total sales volume on your statement. Here’s an example.

Let’s say your total sales volume last month was $100,000, and your total fees equaled $5500.00. Your effective rate would be yours fees divided by your sales:

$5500.00 / $100,000.00 = 0.055 or 5.5%

In general, a good effective rate for credit card processing is around 3-4%. If you’re paying more than this, or more than your processor’s promised rate, this is a sure sign that your payment processor is charging you those nasty hidden fees.

How Long it Takes for Money to Reflect in Your Account

Banks and credit card companies use certain tricks to lure merchants. For instance, a bank may charge meager rates for credit card transactions but end up keeping your money for two to three days before it reflects in your account.

Why should you have to wait so long for your money? It is critical that your payment processor provides you with “next day funding” on all card types including American Express. For example, when you use a processor like Rocket Matter Pay, the money is set to reflect in your account one day after a transaction is processed.

What to Look for in a Legal Payment Processor

When it comes to choosing a legal payment processor, it’s important to look for a provider who can properly manage your payments through operating and (IOLTA) trust accounts. Also, make sure that you chose someone who can integrate directly with your legal practice management system. This will help your firm streamline operations and will also give your clients the best experience possible.

Whoever you choose to use, make sure they have clearly published rates. You also want to make sure that don’t include early termination fees, PCI compliance security fees, junk fees or bait-and-switch tactics.

A prime option is LexCharge, who offers integrated payment processing through platforms including Rocket Matter, CosmoLex, TimeSolv, Tabs3, and more. Unlike LawPay, LexCharge offers no hidden fees and a flat rate for all card types, including American Express. You’ll also experience world-class U.S-based support through superious technology and security.

Switching to a New Legal Payment Processor

If you’re not happy with your current legal payment processor, don’t fret: It’s very easy to switch! In fact, it only takes a few minutes. In most cases, there is no fee to switch, and you’ll only have to fill out a brief application.

It will also help save you big in the long run, since the proper legal payment processor will help reduce your losses, increase profitability and client satisfaction.

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