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You CAN Afford Electronic Payments


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Start Leaving Work at Work

It’s Friday evening, and instead of settling in for a night of TGIF after a busy week, you have one more stop on your way home from work: the bank. Why? Because you need to deposit this week’s childcare tuition payments, given to you in the form of cash and checks.

Since all of your families fork over cash or blow the ink dry on a hastily written check each week, Friday afternoon pickup means a long, hectic afternoon of recording tuition payments, writing receipts, and preparing deposit slips. And it’s okay – you’ve been doing it this way for years. You don’t mind locking up, then waiting in line at the bank on your own time.

For you, Fridays aren’t for plans or parties, they are for payments and paperwork.

Mythbusters: Why You Don’t Accept Electronic Payments

Childcare and preschool professionals at smaller centers give lots of reasons for turning a blind eye to the benefits of online and electronic payment processing. Let’s take a look at the typical myths that might be costing you time and holding you back from competing with larger childcare organizations to grow your business:

How Electronic Processing Fees Work with Childcare Tuition Payments

With a payment processing gateway, you can accept two types of payments – credit/ debit cards and electronic checks, also known as ACH or EFT. When you process childcare tuition payments electronically, you are charged a fee, and the two payment types have different fee scales associated with them:

Transaction fees are higher for credit card payments.

Usually fees are structured so that you are charged a percentage of the total – say 3% – and a flat rate on top of that, perhaps $0.35 per transaction. So for a $100 charge, the transaction fee will be $3.00 (3% of $100) + 0.35 for a total of $3.35.

Fees are usually lower for ACH payments.

You are still charged a percentage of the transaction total, but it’s much lower, probably closer to 0.75%. The flat fee will likely be the same – or close to it – as the flat fee charged for credit cards. For this example, we’ll use $0.35 again. So the same $100 transaction collected by ACH costs $1.10.

Why are transaction fees higher for credit cards than for ACH?

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Good question, simple answer. There are more entities involved in the payment chain with credit card processing. Credit cards are issued by payment card companies, like Visa, Mastercard, Amex and Discover. Those payment card companies work with financial institutions like Capital One and Bank of America to fund lines of credit for folks like you and me.

Every time we make a purchase, the payment card companies charge the issuing financial institution a fee, and that financial institution charges the merchant’s payment processor. That’s where transaction fees come in – they cover the cost of all those organizations doing business, even for something as simple as childcare tuition payments.

When you make an ACH payment, you only incur costs from the merchant’s payment processor, so it’s less expensive because there are fewer entities charging fees down the payment chain.

Why Parents Are Willing to Pay Convenience Fees

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Did you know that Americans pay over half their bills online? In fact, 35% of Americans are enrolled in some form of autopay to ensure their bills get paid on time without any hassle. For today’s parents paying childcare, preschool or afterschool program tuition, that’s no different.

Parents are busy, and they will do just about anything to save time. If paying a small fee means not having to locate the checkbook, remember the checkbook, order a new checkbook, or stop at the ATM on the way to afterschool pickup, most parents would agree that it’s worth it.

Parents also like the control that paying by credit card provides. They decide when the childcare tuition payment is made and how much, and they don’t have to have the cash to back it up right away. This is ideal for families living paycheck to paycheck and budgeting creatively to pay bills.

The Hybrid Convenience Fee Model That Can Save You

You know accepting electronic payments is good for your childcare or preschool business. Now it’s time to lessen its cost by creating a hybrid convenience fee model that works for your childcare business and the families in your program. Here’s how:

  • Charge convenience fees for all credit card payments. This helps you offset those higher-rate transaction fees. We’ve already shown you that parents are willing to pay in order to maintain control over their finances and make sure their bills are paid on time.
  • Charge convenience fees for ACH payments made outside of your scheduled autopay program. This is a great option for parents who like the control over when they pay but don’t want to accumulate credit card balances. The fees are much lower for this type of transaction, and this option still enables parents to pay childcare tuition online.
  • Don’t charge convenience fees for ACH transactions through your autopay program. This fee-free option keeps parents from that frustrated “nickled-and-dimed” feeling, encourages participation in your automatic payments program, and keeps you firmly in control of when you get paid.

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Understanding the Real Cost of Processing Credit Card Payments

All payment processing services charge transaction fees, but the amounts of those fees can vary from one to the next. Some merchant account providers also charge other fees, like a monthly maintenance fee, credit card authorization fees, or other miscellaneous charges.

Those fees can add up, so it’s important to keep on top of whether you’re paying too much to process transactions. You do this by calculating your Effective Rate.

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Your Effective Rate is equal to the total fees you’re charged each month, divided by the total amount of the transactions you processed. Let’s calculate your Effective Rate:

  1. Total the fees on your merchant statement. They’ll include the transaction fees, monthly fees, return fees, authorization fees, etc. (what you pay your payment processor for the cost of doing business with them).
  2. Find the sum of all transactions on your statement. These are all the payments you processed, less any returns (you pay fees on those as well).
  3. Divide the total fees by the total transactions. This is your Effective Rate.

If your Effective Rate is over 3% of what you’re processing, you may need to dig deeper into why. Are you processing a lot of international payments? How about refunds? If there is nothing out of the ordinary, you’re probably paying too much, and it is time to shop for a new payment processor.

When you’re running a childcare center or preschool in the 21st century, you need to provide payment options that work with the way today’s parents and families live. Not only can you afford to accept electronic payments, these days, you can’t afford not to!