10 Tips for Choosing a Credit Card Processor for Your Construction Company

Tips for choosing a credit card processor for your construction company

Clark Lowe, president and CEO of the O’Connor Company, emphasized the importance of evaluating providers carefully to ensure that they meet your business’s unique needs. “When selecting a processor, look for competitive rates, responsive customer service, and a proven track record in the construction industry,” Lowe said. “Sometimes, peer recommendations or industry-specific providers can help you make a more confident decision.”

Keep the following 10 tips in mind when choosing a credit card processor for your construction business.

1. Get a merchant account via an ISO/MSP.

There are two primary payment processor types:

• ISOs/MSPs: ISO stands for independent sales organization and MSP stands for member service provider. They’re essentially the same thing — approved merchant account providers — and they’re typically among the best merchant account services. (Visa calls them ISOs and Mastercard calls them MSPs.) Most processors are ISO/MSPs. They work well for companies that process more than $3,000 monthly and those with varying transaction amounts. This type of payment processor is likely the best fit for your construction business.
• Merchant aggregators or payment facilitators: The other processor type is a merchant aggregator or payment facilitator. These companies sponsor multiple businesses under their master merchant accounts. Businesses that process less than $3,000 monthly may save money by working with this type of processor. They typically charge a flat rate with no monthly or annual fees. Aggregators tend to be more risk-averse than ISOs or MSPs, however, and irregular transaction amounts can trigger a fraud alert that causes the processor to freeze your account.

2. Be upfront about your transaction amounts and volume. 

When you call for a price quote, the credit card processing service’s sales rep will ask you about your average ticket (invoice) size and the dollar amount you process — or plan to process — each month.

It’s crucial to be as accurate as possible with these numbers so the rep can provide accurate pricing. If you decide to proceed with the company, this information will help the rep set up your account correctly. If you have an irregularly large transaction coming up or if your business is busier than average and you anticipate processing a higher volume of transactions, call the processor ahead of time for approval.

3. Choose a company that offers month-to-month service.

When it comes to contracts, construction companies — like many other small businesses — should ensure that their processor doesn’t require lengthy terms. Look for a processor that offers month-to-month service. That flexibility is crucial, because you can close your account without penalty if the processor’s services aren’t a good fit for your business.

Processing contracts may include lengthy terms and charge expensive early termination fees. Before signing with a company, it’s critical to read your contract to verify the term length, cancellation procedures, and applicable fees. 

When requesting the contract for review, the sales rep may send only the application. That is just one part of the contract though. You may need to request the terms of service and program guide, which typically contain information regarding the cancellation policy.

4. Request interchange-plus pricing information. 

Industry experts recommend the interchange-plus pricing model. Many of the sales reps you call, however, will quote only the starting rate for tiered pricing — also called the qualified rate — that applies exclusively to regular cards you accept in person. You may have to specifically request an interchange-plus rate.

Some sales reps may discourage you from choosing an interchange-plus plan because the company makes less money than with a tiered pricing plan. Others may have prerequisites before you qualify for their interchange-plus plans. They may require you to process a specific transaction volume each month, for example, or be a customer for a certain amount of time. The best credit card processors, however, offer interchange-plus pricing to all their customers without any restrictions.

Requesting interchange-plus pricing information gives you a level playing field for comparing quotes. The pricing model is based on interchange — a table of rates set by the card networks — and everyone pays the same amounts. The processors add a markup to the rates, and that’s the rate you’re quoted, so you can easily see which companies offer the lowest rate.

Tiered pricing is challenging to compare because processors add markups to the interchange rates and then sort them into tiers. The number of tiers and the types of cards and transactions sorted into each one vary by processor, but many have three tiers for credit and debit cards: qualified, mid-qualified, and nonqualified.

5. Learn about credit card processing fees.

Credit card processing fees include monthly statement and gateway fees and an annual PCI compliance fee. Processors may also charge a monthly minimum and often impose costly chargeback fees. Additionally, there are standard incidental fees (batch, voice authorization, AVS, retrieval, and NSF fees) and network fees (APF, FANF, NABU, and data usage).

Robert Day, managing partner of weaudit.com, noted that the types of credit and debit cards you accept can affect the processing fee cost. “Depending on the cards, the payment gateway can swing the rates by 1 percent or more if they use the wrong payment gateway,” Day said.

When you call for a price quote, request a fee schedule. Once you’ve narrowed down the companies you’re considering to your top three or four choices, ask them to send you a complete contract to review — including the application, terms of service, and program guide. 

Read the entire contract, highlight or list all the fees it mentions, and compare it to the fee schedule. If fees weren’t disclosed or seem unusual, ask the sales rep about them and see if they’re willing to waive them. If they are waived, ensure that you receive a waiver or an amended contract.

6. Look for a processor that offers level 2 or 3 processing.

When your construction company accepts credit cards from consumers, the transactions are processed as level 1 transactions, which require minimal information to process. If your clients are often other businesses and pay you using corporate cards, however, you’ll pay higher processing rates unless you provide the processor with additional transaction data. 

For level 2 processing, you’d need to provide your customer’s billing address, customer code (or purchase order number), and tax amount. For level 3 processing, you’d also need to include an invoice number and a description.

7. Use a processor that accepts high-risk businesses.

From a payment processor’s perspective, construction is a high-risk industry because of the high invoice amounts, irregular payment spacing, numerous industry regulations, and the fact that customers may make card-not-present transactions. 

Credit card processing in high-risk industries isn’t appealing to many payment processors. Look for payment companies with experience doing contractor credit card processing, because the companies will be less likely to freeze your account when they see seemingly randomly spaced large sales. 

8. Ensure that payment security is in place.

In today’s perpetually online world, ensuring the services and tools you use are secure is paramount. That’s especially true when searching for a credit card processor. A payment security breach could have devastating consequences for a contractor, so ensure the credit card processor you choose adheres to the Payment Card Industry Data Security Standard (PCI DSS). This set of standards helps protect users and businesses from potential credit card fraud.

9. Ensure that you can accept payments in multiple ways.

When speaking with a sales rep, verify that the processor can support payments made in various ways, such as on the go, over the phone, and online. Also ask whether the processor can facilitate ACH payments and other digital payment methods, such as e-checks, to provide customers with greater flexibility.

10. Ensure that the payment software integrates with your existing software.

Many payment processors integrate with the best accounting and invoicing software, so be sure the processor you choose can work with the software you already use. You may even be able to add a payment button to your electronic invoices, helping your customers quickly pay online.

How to choose a construction credit card processor

Since construction jobs have high-ticket price tags, choosing a credit card processor with low rates and features that support your business is crucial. Consider the following steps involved in choosing the best credit card processor for your construction business.

Do your homework.

Many credit card companies do not accept construction companies as merchants because they are considered high risk. Start your search by eliminating companies that won’t approve you. Next, focus on companies experienced in servicing business-to-business accounts and, ideally, construction companies.

Research online and seek advice from reviews and industry peers. When getting recommendations, ask about a processor’s strengths and weaknesses. 

Compare features and pricing models.

Avoid companies with high processing fees and rates. Instead, find processors with low, interchange-plus pricing and low or no monthly fees. Since construction is project-based, you don’t want to pay a high monthly fee when you have little revenue coming in. You also want to avoid a high interest rate on large payments. 

Get demos and custom quotes.

Contact the companies on your shortlist and ask for a software demo. Look for ease of use and the ability to apply deposits and partial payments to customer accounts at set milestones. 

If you like what you see, work with a salesperson to get a custom quote. They will ask you for your average transaction amount and monthly or yearly volume. Use your historical data, but let them know if you plan to expand or change your operation, such as adding smaller jobs or getting a contract with a housing developer.

Compare the quotes.

Compare each part of the quotes you receive, including the following:

• Processing rate
• Monthly fee
• Incidental fees
• Services offered

Using your historical sales data, run the numbers for each company to gain a complete picture of the total charges and compare them. Weigh the benefit of specific services or features against the costs. Based on that analysis, choose the payment processor that best meets your needs.

Benefits of accepting credit cards for construction work

The Federal Trade Commission advises Americans to pay contractors with a credit card instead of other payment forms. Aside from that consideration, here are additional reasons why accepting credit cards is beneficial for construction businesses:

1. Customers prefer paying with plastic. If your construction business is old school and accepts only cash and checks, you may be unintentionally turning away business. Credit cards provide consumer protection, making customers feel more confident. Additionally, customers with rewards cards can get cash back or other perks when using their cards. Finally, using a credit card for construction is easier and faster than applying for a home improvement loan. As Day pointed out, “More people can afford to put something on a card they cannot afford to pay for in cash.”
2. Accepting credit cards improves closing ratios. When you can accept deposits at the point of sale, you’ll move the sales process forward and eliminate customers who change their minds.
3. Accepting credit cards facilitates collection. With existing projects, when you send invoices by email, customers can pay with a credit card online, thus speeding up your collection time and improving cash flow. Credit card transactions are approved or declined on the spot, so you’ll know whether the customer has paid before you begin work.
4. Accepting credit cards facilitates change orders. Jonathan Klem, founder and CEO of Quality Builders, noted that when construction companies accept credit cards, they can accommodate homeowners with change orders not covered by their renovation loans. “We’ve found that for that extra $10,000 to $15,000, it’s good business practice to provide that option,” Klem said. “Splurging on a vanity they really like but is over the allowance for that particular item is one great example of why all construction companies and contractors should give that option.”
5. Most people have at least one credit card. Many U.S. adults have a credit card. Although younger people are slightly less likely to have a credit card, most payment processors allow you to accept other payment forms used by millennials and Gen Z consumers — such as Apple Pay, Google Pay, Samsung Pay, and sometimes ACH.

Jennifer Dublino contributed to this article.