6 Ways Restaurants Can Avoid Unnecessary Credit Card Processing Costs

The pressures on restaurant owners and managers are relentless. New competition. Shifting economic conditions. Changing tastes. All kinds of constantly evolving business considerations make it easy to get caught up worrying about things like customer service and turnover while revenue and profits slip away. In fact, when we provide CFO consulting services to restaurants, we regularly find that key processes for detecting and preventing avoidable money losses are missing. Especially when it comes to credit card processing.

Part of the problem is that people think that credit card processes are generally accurate because they are automated. Restaurants often limit monitoring to simply comparing the percent of credit card processing fees to revenue. For example, if fees are generally at 3% of revenue and they come in at or below 3%, the manager or owner may think everything is okay. Unfortunately, the reality is much more complicated. And, depending on the size of a restaurant, even a half-percentage point difference could mean significant and unnecessary losses.

This blog post explains how credit card processing could be costing your business and what to do about them.

How to stop credit card processing from eating away profits

Unless you are a lawyer/accountant or who reads dense legalese and billing statements for pleasure, it’s easy to end up forfeiting money to your credit card processor that should be going into your restaurant bank account. Given the nature of the processing business, even reputable processors overwhelm their clients with paperwork. Not to mention that less scrupulous providers can play shell games with user agreements and rates that are incredibly hard to follow. That’s why, regardless of your credit card processor’s reputability, it pays to do the following.

1) Check your initial statement against the contract

Saying that contracts from credit card processing companies are difficult to understand may be the understatement of the year. That’s not to say you shouldn’t read contracts, but the reality is that most people don’t take the time to carefully understand credit processing terms and conditions. And even if you do, the terms and conditions will probably change sooner rather than later. So what can you do?

One helpful strategy is to review the rates and extra charges and fees in your first statement and then compare them from month to month for unusual changes. You could even create a simple spreadsheet to cross reference how rates and fees change monthly or quarterly, so you can pinpoint pattern changes and fight potentially erroneous charges that may arise.

2) Reconcile credit card charges made in the POS with what hits your bank weekly

Going back to the point about accuracy-in-automation perceptions from earlier being false, all kinds of things can happen between your POS and when the money hits your bank. A weekly reconciliation is essential because the longer it takes you to identify issues, the harder it gets to recover any lost revenue. Just consider these examples.

POS Malfunctions
After a malfunction, one client’s POS stopped sending charges to the credit card processor. Although the processor was returning funds to the client’s bank account for everything it was aware of, thousands of dollars in charges over the course of several days didn’t make it through, including transactions involving prepaid debit cards that could not be recovered. These types of issues could quickly add up to tens of thousands of dollars across a chain of restaurants

Fraud risk
Another client’s restaurants had run out of money, even though its income statement looked profitable. It turned out that the credit card company had impounded nearly $60,000 in transactions because a restaurant had processed a stolen credit card and the credit card company flagged the restaurant as a fraud risk. Since the issue went unaddressed for a long period, resolving the issues was much more difficult and costly than if it had been discovered quickly.

It’s also important to be aware that processes on your provider’s side can make it difficult to accurately track revenue. For example, some processors take fees out of every transaction while others may debit the charges weekly or monthly. No matter what, it’s important that you understand the fee amounts and collection details so you don’t end up paying your processor anything more than you owe.

3) Keep an eye out for new fees

Thinking back to tip 2, If you pay attention to fees on a month-to-month basis, it’s much easier to spot fees and charges that may be charged due to errors, misunderstandings or even unscrupulous business practices. For example, you could face high-risk rates for as something as simple as mistyping an address for a PCI compliance scan (your processor could claim you are PCI noncompliant until you resolve the issue).

4) Monitor and follow up on chargebacks

With all of the paperwork your restaurant gets from credit card processors, keeping track of chargebacks can be cumbersome. But unchecked chargebacks can cost you a lot of money, so it’s never a good idea to just roll over and accept them. At the very least establish a threshold for when chargebacks should be investigated and a process to make sure the investigation is carried out in a timely manner since processors often have tight response deadlines.

5) Pay close attention when switching processors

Unanticipated fees from credit card processors may not end when you decide to switch providers and terminate your service. For instance, less reputable firms may include large termination fees in their contracts. Make sure you understand the impact of the fees before you terminate your contract and switch providers.

During a transition to a new provider, it’s also important to review your statements to see whether or not your existing provider withholds any money for possible chargebacks. If so, be sure to ask for a final statement regarding chargebacks as well as a refund for any funds the processor did not use.

6) Avoid needlessly high fees and unnecessary charges

You may be able to avoid some of the charges on your card processing bill altogether or at least reduce them. For instance, if you are using a managed POS service that includes PCI compliance features, you could be getting double-dinged by your credit processing provider for its PCI compliance services. In many cases, it’s much cheaper to go with the services your credit card processor offers. At the very least, make sure you aren’t paying for the same services twice.

You should also consider how you can control the charges for things like firewalls and desktop credit card processing terminals. Just like cable companies charge you for a cable box, credit processing companies or your POS service provider may be charging you exorbitant fees to rent hardware. And you can always buy quality firewalls and processing terminals on the open market at very competitive rates. If purchasing and running your own firewall sounds intimidating, most local IT services will have the knowledge needed to help you choose and set up firewalls to the latest standards.

One step at a time

The beauty of all of these steps is that they are relatively easy to carry out and many can be easily delegated. And don’t forget that when it comes to protecting revenue and growing profits, you don’t have to figure out everything on your own. You can always call vcfo for CFO outsourcing support to help get on a faster track while ensuring that your processes are aligned with industry best practices.


Bill Schwartz is a Consulting CFO for vcfo Austin. As a top financial consulting and HR consulting firm, vcfo provides contract CFO and CFO Consulting services, HR outsourcing and interim HR services. Additionally, we provide technology strategies consulting and cost-effective recruiting solutions. Whether you seek part-time, interim, project-based or full-time support, vcfo’s customizable engagement model will fit your specific business needs.