How to Read a Merchant Statement – All You Need to Know

August 24, 2021/ Posted in Credit Card Processing

Any reputable business owner should know how to read a merchant statement. This way, you have control over your finances and incomes and an awareness of how well your company is doing. If you intend to start an enterprise, you must understand these statements and how reading them is helpful.

What Is a Merchant Statement? A Short Summary of the Most Important Document for Your Company

Before we say anything about reading a financial recap sent by your processor or account issuer, we have to answer the question of what is a processing statement. Maybe you know by now that a merchant account is something you set up for your enterprise and one where payments of all types are deposited into.

When you set up a merchant account, you’re given an Identification Number, also known as MID. MID is the number you use as an ID for your financial records, business, and transactions. If you want to start an e-commerce business, this procedure remains the same. Furthermore, many e-commerce businesses are approved today because there’s irrefutable proof that not having a brick-and-mortar shop can still be profitable.

So, a merchant statement is a comprehensive document containing every single transaction (including the third-party ones,) fees, and chargebacks for a given month. Just like you ask (or get) a list of transactions from your issuing bank, the same can be done when you’re an enterprise.

How Do I Get a Merchant Statement?

You can get ahold of your monthly reviews by contacting the financial institution that issued your account. If you worked with an acquiring bank, they could send you the document via mail; if you contacted an ISO (Independent Sales Organization,) they might be issuing the documentation via email or to your address. If you worked with a merchant aggregator, they’d probably have their app with information on merchant services rates, your contract, and each transaction.

Getting financial reviews may sometimes require the attention of a mobile notary. They usually approve accounts, review documentation, and notarize legal papers. There’s typically no need for them to get involved, but it’s something you should look up with your processors. Another thing to note is that while some issuers prefer to send your income statements via mail, that’s already considered outdated behavior. You should be able to see all your info through email or some website while receiving papers in the mail to supplement the things you read online.

Contact your account issuer to send you the monthly financial reviews

How Do You Analyze a Merchant Statement?

When you receive your statement, you’ll see that it has a few pages full of the pricing information and summary. To figure out whether your business worked better this month compared to last, we recommend digitizing statements, so you have an easy way to compare them after every period. Additionally, while it’s great to check your financial activity at the end of each month, it’s recommended to check it daily and ensure there aren’t discrepancies.

When looking at our bank statements, we can see the word ‘merchant’ on them very often. Now that you want to be a business owner, you’ll understand who is the merchant in a credit card transaction – it’s your company. Different types of businesses have different kinds of info on their reviews, but there’s a lot of mutual content for every merchant. Income, deductibles, and legal advice are just a few.

The Contents of Your Merchant Processing Statement

Your financial recap consists of several pages of information. It mostly depends on traffic your company garners within a month. If you’re a level 1 merchant, the document could be twenty pages long. If you’re a level 3, which is only e-commerce operating, there could be anywhere between five and fifteen pages of text. Of course, you don’t have to read every single fact from the review – pay close attention to the fees section, more than anything.

Initially, there’s the entire deposit details section followed by their summary. Additionally, you’ll see sections about third-party transactions, adjustments or chargebacks, and deductible amounts for all transactions. Those are typically convenience fees that cards issuers and payment processors charge, among many. Mandatory legal disclosure is also a part of the document.

You should pay close attention to the summary on page 1 and the fee charges list that starts on page 5. Compare the deducted fee numbers on pages 1 and 5 and whether they match fully.

Your financial income and deductions papers can be read online

The First Page – The Account Number, Fees, and Deposit Details

On the first page of your monthly recap, you’ll see the MID. The number on the document should match the one you have, so double-check if your issuer did well here. MID is like your personal ID – your enterprise can’t get legally identified without it.

After the identification number and other personal info on the company, you’ll see a summary of your transactional activities within the past month. This only displays the numbers in short, without delving into too much detail, but it’s enough to get a quick review of everything. If you had a wholesale during one period, the summarized version of income might come as a blessing.

On pages two and three, you have the mandatory legal disclosure part of the document. While it’s not mandatory to read this section of the document, it’s recommended to glance at it for potential changes in charges, sales, and alike.

Figuring Out Adjustments and Chargebacks from Credit Cards

Deductions known as chargebacks or adjustments are potentially not that common, but it all depends on your monthly sales and traffic. Each payment normally goes well, but sometimes people pay through credits or make returns. This part of the document is only important if you had chargebacks during the last 30 days, and it shows a bit about how cards processing works.

Understanding the Fees Quote and Pricing

All businesses have a tax deduction as part of their operating models, and these deductions are considered mandatory; taxes are a natural part of finance, and existence, really. It can be hard to understand how a small business pays taxes, but you’ll have to brave it and get to know every integral part of running a company.

A business can also get a closer look into the average credit card processing fee, as well as the POS fee, if there is one. The “Fees Charged” section is a four-tiered rate program that presents all the rates and deductions from a specific transaction.

Charges made by card issuing companies are known as interchange costs. The overview of interchange costs is divided into the following categories:

  • Volume – the amount of money that poured into the merchant’s account during the last month,
  • Rate – this is the percentage that the processor or issuer takes from the overall volume number, and it’s usually a flat rate,
  • Total – the percentage rate that got deducted from the volume, presented in a specific amount of money.
Try to understand all parts of the financial statements you get before reading them

A Merchant Services Statement Has Detailed Information on Payments

Starting at page 4, you have the cards brands list and their corresponding volume of payment during the period you’re looking at. After that, you can see the average ticket, the number of payments in each category, and the total volume reduced by adjustments if any occurred. For each date in the document, there’s an assigned batch number for the cards that were used. Each batch has third-party payments deducted from the total amount on the days they happened.

This is good because you get to see the most popular types of cards used. You can compare merchant services for credit card processing and look for other processors if you prefer. Some card issuers have their own companies that process payments, such as American Express, and those are considered to be Third-Party Deductions.

When Do the Third Party Transactions Happen?

Most third-party deductions happen when the card issuers have a mandatory fee. When someone pays with plastic, it matters a lot who made it. Visa and MasterCard are among the most popular ones, but they don’t usually impose third-party deductions. They also potentially allow businesses to choose their own credit card processing companies and may offer better rates for each processor.

American Express is a widely used company, too, but they have their own processor services. Every time someone pays with AmEx, a certain percentage of that will go straight out of your pocket and into theirs. However, their goal isn’t to scam people out of money but to control how payments from their cards get processed. AmEx can send you a detailed account of percentage rates and payments that happened in your company during a certain time period.

Some companies have their own payment processors, such as American Express

Don’t Skip Calculating Your Effective Rate

Before we mention calculating it, we’re curious if you’ve even heard of the effective rate. We’ll assume you haven’t and still explain it, which doesn’t mean you shouldn’t fully trust your financial network. The effective rate accounts for every single transaction and fixed monthly cost that you pay to accept cards in your enterprise, and it’s the difference between every fee charged and the total volume of income.

Remember when we mentioned the legal disclosure portion of the document? It typically contains info on changes in rates and deductions or any calculation going down the line. If you don’t read it but find your effective rate’s different, you should probably go back and read pages 2 and 3.

So, how do you calculate the most important rate in your report? Say that your total transaction volume was $50,000, and every fee charged amounted to $500. Perhaps the third-party deductions came to the amount of $1,500. Your total income would then be $48.000. However, your effective rate would be calculated like this:

  • $50,000 – $1,500 = $48,500

(you wouldn’t always take away the whole amount of third-party deductions, but for this calculation, we’ll remove the AmEx fee totally)

  • $500 – $1.60 = $498,40

(we take away a mandatory $1.60 fee for AmEx cards from the fee charged portion)

  • $498,40 / $48,500 = 0,0102
  • 0,0102 x 100% = 1,02%

This means you paid a 1,02% rate during this period so people could use cards in your company; it also shows the effectiveness of your processor services. If there weren’t any AmEx or third-party deductions on your account, then the calculation would be simpler:

  • $500 / $50,000 = 0,01
  • 0,01 x 100% = 1%

They end up being similar, which is excellent. This percentage is a great effective rate, and if it seems too high, you might want to seek out financial advice and help or a different processor service.

Calculate your effective rate to see how well your processor services are

How to Find a Suitable Credit Card Processing Company?

So, if you end up having to change your processor company or are just starting and want to look for the best, you’ll have to do some research on the best credit card processing services. If your processor gives you financial advice and helps you start applying for a merchant account, that’s a good sign that you should work with them. You can even ask them to calculate the effective rate with you and decide based on that.

In any case, a legitimate company will have a well-developed website, accurate and various contact information, and transparent communication with you; these are always good signs. Because you want to be a businessperson, you must understand all aspects of it. Paying attention to the financial reports you get each month could help you grow your enterprise and save money. Don’t ignore the numbers.