How to Calculate Residuals for Credit Card Processing

You'll Receive Card Processing Fees Each Month
You'll Receive Card Processing Fees Each Month (Image:

Residual income is a wonderful feature of a credit card processing business. Credit card processors with whom you are partnered have sophisticated software to calculate card transactions and the income generated. It's wise for you to also make a quick calculation of residuals to ensure that reported income is correct. Here are items to consider and a simple way to calculate your range of residuals.

Things You'll Need

  • At least one credit card processor relationship.
  • Computer
  • Calculator
  • Merchants

Negotiate a satisfactory residual income agreement with your credit card processors. A common fee split is 50%-50% of the overages earned on all credit card transactions recorded by your merchants. This is a fair split on every transaction.

Examine the monthly transaction reports from your merchants. Total credit card sales volume for the month is the critical component. Note any merchant sales volumes that may appear too high or too low.

Analyze both the total credit card residual income and your portion on your monthly transaction statement. Since there are hundreds of different fee categories for both Visa and MasterCard, a detailed audit or computation is almost impossible without sophisticated -- and expensive -- software.

Use a philosophy of "reasonableness" when computing or evaluating monthly residuals. For example, determine an "average" credit card processing rate for each of your merchants. Your typical small ticket retail stores (neighborhood, convenience, or gasoline) will usually display many transactions created by standard personal credit cards. Your middle to upscale restaurants may also have many corporate credit card transactions, typically at a much higher processing rate.

Multiply each merchant's sales volume by your computed "average rate" percentage. If your result is close to the reported residual fees for each merchant, you can have confidence in the reported figures.

Report any perceived discrepancies to your credit card processing partner. It has all of the detailed data for each of your merchants and can audit their records to verify accuracy. Should you need a detailed report for one or more merchants, your processor can provide one for you.

Tips & Warnings

  • As you become more comfortable with a new credit card processing partner, you can reduce your monthly "due diligence" efforts to verify and compute your residuals manually. Understand that larger credit card processors may have millions of merchant transactions each month, so it's unreasonable to expect perfection from their computations. Be patient and professional with processors, who typically correct any errors quickly.
  • Don't merely accept a severe transaction decline for a merchant as a bad month. Contact the merchant and offer your help and expertise. The merchant may be preparing for a change in processors, resulting in a lost client -- and lost residuals. Don't neglect a merchant who does not appear on a current month's report. Merchants often won't inform you if they are suspending operations or switching to a new processor. Speak to them immediately to try to save them as a client.

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