How to Choose a Billing Cycle for Your Business

When analyzing your credit card statements, besides understanding your pricing model and calculating your effective rate, it’s important to know exactly when you’re being charged. A closer look at your billing cycle can reveal a lot about how much you’re paying and whether you’re calculating your effective rate correctly. Oftentimes billing cycles are decided by providers, but sometimes it comes down to personal preferences. The main concepts we’ll be looking at are the difference between daily discount versus monthly discount and defining billback. 

Daily Discount vs. Monthly Discount

“Discount” refers to your card processing fees (as opposed to scheduled monthly fees). This has nothing to do with your pricing model. Most merchants are on a monthly discount plan, meaning their discount fees are all charged at the same time in one large sum. On this plan, you receive your gross deposits throughout the month and then pay your scheduled and discount fees all at once. 

On a daily discount cycle, however, your discount fees are deducted from each batch settlement as the month progresses, leaving you with net deposits from your batches, while all other fees are charged in a separate “chunk”. You will see two line items: a credit for your gross deposits and a debit for your collected discounts. With daily discounts, you must be careful to add the discount fees you’ve already paid throughout the month to the other monthly fees you still need to pay. Don’t be misled by the “total charges” figure, which may not include the discount fees you already paid.

Is one of these right for me?

Daily discounts may sound better to small businesses, who might risk being hurt by the larger charge at the end of the month instead of smaller charges throughout. While the batches in daily discount may not always settle “daily”, the frequency of fee deduction is much higher than the monthly billing. 

That being said, using a daily discount method makes reviewing your statements a tedious- and frankly frustrating- task. Sifting through statements is already difficult enough with the lack of standardization across the board in the payments processing industry, but most businesses agree that it is easier using the monthly discount method. If you can afford to utilize the monthly discount method, we recommend choosing that. For any further questions about reading statements and lowering your payment processing fees, you can book a free consultation with one of SwipeSum’s payments experts. 

Billback

Billback is a rolling billing method that is different from but often combined with a daily discount setup and a tiered pricing model. Instead of a normal tiered plan, however, with billback you are charged the lowest possible rate for all your transactions first, then charged a fee the next month to recoup all the extra cost for any higher-tiered transactions you had. To summarize, Billback pricing is when your account is billed for the current month at the standardized rate, and the previous month for the difference between the standard and the actual rates.

With this rolling system, you’ll need two months of statements to calculate your effective rate since your charges for one month are split over two; without two statements, you can’t see the exact rates you’re paying. Furthermore, there’s something called an Enhanced Billback (or Enhanced Recovery Reduced), which adds a markup fee to the next month’s recouping fee. You may see BB, EBB or ERR abbreviations (along with a past month’s abbreviation) listed on your statements if you’re in a billback situation. Essentially, they all mean that your merchant services provider is tacking on an additional markup that increases your fees.

Is Billback right for me?

Overall, Billback rarely benefits a business. It was designed by the merchant services industry to be extremely non-transparent and hold accounts for long periods of time. You run the risk of bankruptcy if you have a good month followed by a slow month, and oftentimes providers will fail to mention surcharges that you may have. 

Contact SwipeSum for more information on what billing cycle is best for your particular business.