When it comes to choosing a credit card processor, it pays to read the fine print. 

Still, reading your statement isn’t always the most reliable option to know what your credit card processor is really charging. Many processors advertise a certain rate when you sign up, and then charge more than you expect in the form of hidden fees.

Fortunately, there is one foolproof way to find out the true cost of accepting credit card payments—calculating your effective payment processing rate. 

What is an effective payment processing rate? 

Your law firm’s effective payment processing rate is the percentage of each credit card payment that goes to your payment processor. For example, if your effective payment processing rate is 2%, then for every $100 in credit card payments that you receive, your firm pays $2 to its payment processor. 

Why does your effective payment processing rate matter? 

Effective payment processing rates have a significant impact on a law firm’s bottom line. For example, an effective processing rate of 4% might not sound like much at first. However, if a law firm processes $1 million in credit card payments per year, it amounts to $40,000 in processing fees.

Simply put, the lower your effective payment processing rate, the more money you keep from each payment.

In addition to the direct cost of processing fees, high effective payment processing rates also reduce your firm’s profitability in other ways. For instance, if your effective processing rate is too high, you may need to charge your clients higher fees to cover the cost. This can make your firm less competitive and lead to lost business. 

What impacts your rate? 

Different processors charge different rates. Unless your payment processor offers a true flat rate, the amount of processing fees you pay will vary depending on many factors (often hidden deep within your contract). 

The type of transactions processed 

Processors often categorize transactions as qualifying, mid-qualified, or non-qualifying. Qualifying transactions have the lowest processing fees, while non-qualifying transactions have the highest processing fees. Mid-qualified transactions fall somewhere in between. 

Whether a transaction is qualifying or not depends on factors like the client’s payment method, the amount of the transaction, and the processing method. Certain transactions, such as international transactions and high-risk transactions, might also incur additional fees. 

The volume of transactions processed 

Some processors offer volume discounts, meaning that law firms that process more transactions each month pay lower fees overall. Processors may promote these discounted numbers in their offers. 

This is one reason it’s so important to ask questions. If your firm is small to mid-size, you might not be eligible to take advantage of advertised savings. 

Hidden fees 

The average law firm incurs about 10-15 categories of hidden fees, including 

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

These fees can quickly add up, leading you to pay more than your processor’s promised rate. 

How to calculate your effective payment processing rate? 

With the right information, this figure is fairly easy to calculate. Simply fill in the blanks below: 

Total processing fees ÷ Total sales volume = Your Effective Payment Processing Rate

To make things more digestible, multiply your effective payment processing rate by 100 to see it as a percentage. Easy! 

Here too, the details matter 

To complete the equation, you’ll first need to determine the total amount of money your firm pays to its processor. 

Be sure to consider all of the fees that your processor charges, including interchange fees, assessment fees, and markup fees. You’ll also need to determine the total dollar amount of transactions processed, also called the total sales volume. 

Both of these figures should be available on your processing statement. 

Are you paying greater than 3-4%? 

If so, you’re paying too much. 

Try these tips to secure a lower effective payment processing rate 

Just keep in mind that each one has its drawbacks. 

The tip: comparison shop 

Not all processors charge the same rates. Take the time to read the fine print, so you can compare ALL the rates offered by multiple processors before choosing one.

The drawback: Spreadsheets, anyone? It’s easy to miss small yet costly details when juggling so much data. 

The tip: negotiate with your processor 

If you work in big law and process a high volume of transactions each month, you may be able to negotiate a lower rate with your processor. 

The drawback: Results may vary, and hidden fees are still a risk here. 

The tip: consider using a credit card processing aggregator 

Credit card processing aggregators can help you compare rates from multiple processors and negotiate a lower rate. 

The drawback: This isn’t free and could add a layer of complication to calculating your total credit card processing costs. 

The tip: process more qualifying transactions 

Asking customers to use debit cards instead of credit cards, process transactions in person, and avoid processing transactions with rewards cards could lower your rate by reducing non-qualifying transactions.

The drawback: This method also reduces client convenience and, possibly, your firm’s competitive edge. 

The tip: identify hidden fees 

Read the fine print carefully to determine how you can avoid hidden fees. 

The drawback: This isn’t as simple as it sounds, since many processors purposefully conceal these costs from firms until the charge is already incurred. 

Save money, skip the hassle, and get a more affordable processing rate with CosmoLexPay 

Lower your effective payment processing rate the easy way by switching to CosmoLexPay, an end-to-end credit card processing solution designed specifically for law firms with: 

• Simple and affordable pricing 
• NO hidden fees 
• NO fixed monthly fees 
• NO long term contracts 
• Same-day and next-day funding 
• Baked-in PCI, ABA, and IOLTA compliance 
• Seamless integration with CosmoLex account 
• Forever-free customer support 
• Billing features that work as hard as you do 

Our solution saves you money, in more ways than one, by reducing the billing process time burden for attorneys and encouraging clients to make more timely payments via your custom-built, self-serve online portal.

Schedule your free demo of CosmoLexPay today and start saving money on your firm’s credit card processing fees!