By OliviaMorgan April 1, 2025
For any small business owner, accepting card payments is no longer optional—it’s expected. Whether you run a local café, an online store, or a boutique service business, having a reliable merchant services provider is essential. But choosing the wrong one can be a costly mistake.
From hidden fees to long-term contracts that lock you in, the wrong decision can quietly drain your profits. In this article, we’ll explore five common mistakes small business owners make when choosing a merchant services provider—and how you can avoid them.
Let’s help you make a choice that fits your business, supports your growth, and protects your bottom line.
Mistake 1: Not Understanding the Pricing Model
One of the biggest mistakes business owners make is signing up without fully understanding how they’ll be charged. Payment processors use different pricing models, and the differences can have a big impact on your monthly statements.
The three most common pricing models are flat-rate, tiered, and interchange-plus.
Flat-rate pricing is straightforward—you pay the same rate for every transaction. This might seem convenient, especially for businesses just starting out. However, flat rates are often higher than what you’d pay under other models, particularly if you have high-volume sales or mostly debit transactions.
Tiered pricing groups transactions into categories like “qualified” or “non-qualified,” but these tiers aren’t always transparent. What you think is a low rate can quickly climb depending on the type of card your customer uses or how the transaction is processed.
Interchange-plus is considered the most transparent model. It separates the actual cost charged by the card network (interchange fee) from the processor’s markup. While it may seem complex at first, it allows you to see exactly where your money is going—and it often ends up being the most cost-effective.
If you don’t take the time to understand these models, you could be paying significantly more than necessary. Before signing up, ask the provider to explain their pricing in plain language. Better yet, request sample statements so you can see how costs are calculated in real-world terms.
Mistake 2: Ignoring Hidden Fees
Another common mistake is overlooking hidden fees buried in the fine print. Many business owners get excited about low transaction rates and forget to ask about the extras. These fees can sneak up on you, especially if you’re not reading your monthly statements carefully.
Some of the most common hidden charges include:
- PCI compliance fees: These are charges for meeting the security standards required to process card payments.
- Statement fees: A charge for simply receiving your monthly statement.
- Batch fees: Fees for closing out your terminal at the end of the day.
- Minimum monthly fees: If your business doesn’t process a certain dollar amount in transactions each month, you might get charged the difference.
- Chargeback fees: These apply when a customer disputes a transaction.
- Gateway fees: If you use a payment gateway for online transactions, this fee may apply on top of other costs.
All of these can add up fast. If you’re comparing providers, don’t just look at the headline rate. Ask for a full list of fees—monthly, per-transaction, annual, and one-time—and take time to read the contract.
It’s also a good idea to watch for vague terms like “miscellaneous” or “other fees” on your statements. These could signal that you’re being charged for services you don’t need or use.
Mistake 3: Getting Locked into Long-Term Contracts
In the rush to get started with accepting payments, many small business owners sign long-term contracts without fully understanding the commitment. Some processors require contracts of two to five years with automatic renewal clauses, early termination fees, and other strings attached.
At first glance, these contracts may offer lower rates or attractive sign-up bonuses. But in the long run, they can limit your flexibility and cost you more if you need to cancel.
Let’s say your business grows and your needs change. Maybe you want to switch to a provider with better technology, lower fees, or faster funding. If you’re locked into a contract, making that switch could cost you hundreds—or even thousands—of dollars in penalties.
Some contracts also come with liquidated damages clauses. This means you may be on the hook for the full amount you would have paid had the contract run its full term.
To avoid this mistake, always ask these questions before signing:
- Is there a contract term? If so, how long?
- Is there an early termination fee?
- What’s the cancellation process?
- Are there any automatic renewals?
Whenever possible, choose a provider that offers month-to-month agreements. These give you the freedom to make changes without being penalized.
Mistake 4: Focusing Only on Rates Instead of Value
It’s natural to be drawn to the lowest rate, especially when you’re watching every dollar. But the cheapest option isn’t always the best one—especially when it comes to payment processing. In fact, obsessing over transaction rates while ignoring other aspects of service can end up costing you more in the long run.
Let’s say you pick a provider that offers a super-low rate but delivers poor customer service. If your terminal breaks down on a weekend and you can’t reach anyone for help, you’re losing sales by the minute. Or imagine you run into a chargeback issue and can’t get the support you need to resolve it.
Then there’s the matter of technology. Some providers offer intuitive, modern systems that integrate with your inventory, accounting software, and reporting tools. Others use outdated platforms that make everyday tasks harder and slower.
A good merchant services provider should offer more than just payment processing. They should be a partner in your business. This means reliable customer service, clear reporting tools, scalable solutions, and fraud protection.
Before choosing based on cost alone, ask yourself:
- How important is customer service to me?
- Do I need integrations with other systems I use?
- How quickly do I receive funds after a sale?
- What happens if there’s a problem with a transaction?
Choosing value over price doesn’t mean overpaying—it means making sure you’re getting the tools, support, and flexibility you need to succeed.
Mistake 5: Not Reviewing the Fine Print
This last mistake is one that even experienced business owners make—signing up without reading the full terms and conditions. Merchant services agreements are full of legal and financial language that can be tedious to read, but skipping this step can cost you.
The fine print often includes important details about fees, funding timelines, liability for chargebacks, PCI requirements, and more. It may also outline how and when the provider can raise rates or make changes to your agreement.
For example, you might discover that your processor has the right to change your rates with just 30 days’ notice—or that you’re responsible for fees if you don’t complete a PCI compliance survey each year.
Another issue to look for is the “liquidated damages” clause we mentioned earlier. This clause allows the provider to charge you for the remaining contract value if you cancel early.
It’s not just about avoiding surprises—it’s about protecting your business. If you’re unsure about any section of the agreement, ask the provider to explain it to you in simple terms. If they can’t—or won’t—that’s a red flag.
In some cases, it’s worth having a legal or financial advisor review the agreement before you sign. An extra 30 minutes of reading today could save you months of headaches down the road.
How to Choose the Right Provider
Now that you know the common mistakes, let’s quickly recap what to look for in a good merchant services provider:
- Transparent pricing with a clear breakdown of all fees.
- Flexible contract terms with no long-term commitments.
- Strong customer support with multiple contact options.
- Scalable solutions that grow with your business.
- Security features and PCI compliance support.
- Fast and reliable funding timelines.
Don’t be afraid to ask questions. A reputable provider will take the time to help you understand the service and feel confident in your decision. If they pressure you or avoid direct answers, it’s a sign to walk away.
Also, look for reviews and testimonials from other small business owners. Real-world feedback can give you a more accurate picture of what to expect.
Final Thoughts
Choosing a merchant services provider is a major decision. It affects not just how you get paid, but also how you manage your daily operations, customer relationships, and overall financial health. By avoiding these five common mistakes—failing to understand pricing models, overlooking hidden fees, signing long-term contracts, focusing only on rates, and skipping the fine print—you put yourself in a stronger position to choose a provider that supports your business goals.
Take the time to do your research. Ask for clarity. Compare more than just numbers. And most importantly, choose a provider that values your business as much as you do.
In the end, the right merchant services partner can help your business grow, improve customer experience, and simplify your operations. But it all starts with making the smart choice today.