Which sort of Merchant Processing Is best for Law Firms? You should Avoid “Flat Rate” Processing
If you have concluded, even as believe you should, that your lawyers should take credit and debit cards, you still must choose which processing you would need. There are two general types of processing you can find; we will refer to these as “conventional” or “standard” processing and “flat-rate” processing. This distinction is really phone system for law firms historic more than anything else. Variations of standard processing have always been available (although they are constantly improving). Flat-rate processing is more of a recent innovation and was primarily designed for really small or occasional businesses, although it is often marketed (wrongly, in our opinion) to other businesses.
Particularly within the standard processing option there are meaningful dissimilarities between the providers and plans, but it is not particularly difficult or time-consuming to understand what you ought to understand and discover the right processing from these options. We advice that law firms use the “conventional” or “standard” processing and would regard using the flat-rate services, in general, as a mistake.
The Flat-Rate Providers
You may be lured to try PayPal or the Sq (or similar services, to which we will refer, collectively as “flat-rate providers”) for their apparently low “commitment” requirements. As you will see below, however, the flat rate providers have significant drawbacks in all significant criteria, and we do not hesitate in advocating other alternatives for most firms.
Some people default to the flat-rate providers for their apparent simplicity — choosing one can seem really easy and automatic. It is easy to understand the dollar cost of the service you choose, requires no cash pay out for equipment, and requires no commitment to a specific duration. They are, in other words, an easy choice for those who would rather not hang out thinking about the choice.
That is not an alternative way to run a business when the decision can have such long-range consequences. If you are hesitant because of concerns about the price, need for equipment, lengthy responsibilities or any of the other straw men most credit processing sales guys like show you, these concerns are outmoded if you are reasonably careful or appropriately advised.
If you need to obtain credit processing for your firm for the first time, reaching an informed and safe decision should not take you very much time. If you already have a merchant processing, you could upgrade your service and save money — also without spending a lot of time.
Why not to use Flat-Rate Providers
The flat-rate providers market themselves largely on convenience, speed, and simplicity. They point out that anybody can use a handy device on his or her phone and accept payments super fast — with just a “low” flat rate fee. The devices are easy to use, convenient, and fast, but the flat-rate fee is not low, and there are significant disadvantages to the flat rate providers that are even more important.
Ironically, one disadvantage of the flat rate systems is their “easiness. inch As is well known, anybody can get them, and many people have — hobbyists, individuals, babysitters… It’s great for those who only occasionally need to accept payment in an electronic format. Obviously, there’s a price to be paid for this in respect — truly successful firms do not (in general) use these low common denominator services. It is not appreciably more difficult to set up and use conventional processing services, but there is perceived stability and respect in using them. It is far more professional to simply accept electronic payments yourself rather than to use the flat-rate providers.
Flat-rate processors charge a single rate for their processing regardless of the type of card or whether the card exists. You don’t have to understand (or even listen to) anything about the “mind-boggling” range of charges conventional processing will have. As a lawyer, you could understand these fees of course, but you would rather practice law, and as a business person you may already be swamped by arcane business matters. This is the selling point of the flat-rate providers, but it significantly overstates the intricacy of the problem and leads to an ineffective solution.
Here is what you ought to know at the highest level: the flat-rate providers do not generally provide a better price for the payment processing needed by most law firms.
If you expect you’ll take payments by credit or debit cards of under $500 per month purely as a convenience to the occasional client, the flat-rate, “simple” payment systems could suit you. Most law firms that accept electronic payments find that it soon constitutes a considerable and growing part of their payments. The price benefit from the flat-rate systems is gone at around $1, 000 monthly volume, and this is because the flat rate is a high rate which, beyond a certain “break-even” point negates the cost advantages of having the costs which standard processing passes through which the merchant. By the time your firm is averaging twelve to fifteen hundred dollars in volume per month, the price advantage is clearly with standard processing, and that advantage grows significantly as volume does.
Price matters, of course, but there are other reasons standard processing highly advantageous for most law firms.
Probably the most significant advantages the standard processing has over the flat rate services is in the “other services” areas, such as in frequent charging and electronic check capability. Of particular importance to law firms is that some standard processing is able to handle payments to trust accounts, whereas the flat rate services in general cannot. We will discuss these services quickly.
Frequent charges are charges made repeatedly on a single “authorization. inch These make it easy for health clubs (for example) to charge monthly memberships. They have the ability, also, for law firms to charge monthly (or other periodic) retainers. You should not underrate benefit of this fact — and yet, if you have not seen the impact it can have, you probably will underrate it. You can obtain stable, reliable, automatic cash flow if you set up your clients to pay their retainers automatically by electronic means. If you are in a small firm, this one thing can revolutionize your practice.
It is possible to accept checks in an electronic format. You can — automatically — verify and deposit them from the comfort of your office, and you can also insure them against insufficient funds. You can, in other words, convert checks to credit card payments in great ways. This allows you to accept checks if your practice still relies upon them in general, and yet protects you from bounced checks.
The flat-rate services are not designed to affect trust accounts, and this largely at least (if not completely) makes them ethically unacceptable for accepting “unearned” retainers. Since a large benefit from using credit processing in the first place is that it makes clients more able to pay money “up front, inch the inability to simply accept unearned fees for deposit in your trust account is extremely significant. Accepting payments only after the fee is earned requires the client to closely with after the client no longer has an urgent need for your services. To begin with this subjects you to the excess transaction costs of additional client communication about a potentially uncomfortable subject, but this will also all-too-often lead to past due accounts receivable.