This Guest post written by Rich McIver who is the Chief Marketing Officer for Soar Payments, a Houston based merchant services provider. You can learn more from Soar Payments via their website

As a product manufacturer that primarily sells through third-party retailers, your company’s focus is often not on optimizing your direct sales channel, after all, that’s what your retailers are for. Direct sales, however, can often be the highest margin channel for your products, and consequently, even relatively low volume direct sales, if properly optimized, can provide a significant percentage of your company’s overall margin. The key for making direct sales worthwhile, however, is that your organization must take some steps to optimize the process.

Thankfully, as the product manufacturer, you have some unique competitive advantages over retailers that you should be exploiting. One significant one, that we’ll be exploring in this article, is access to lower credit card processing costs. Lower credit card processing costs can mean, at the extremes, a full 2% difference in the cost of a transaction, which in some industries can literally double a business’ profit margin. The retail manufacturer is uniquely positioned to obtain some of the lowest credit card processing rates, if they go about establishing their credit card processing in the right way, otherwise they could use the help of something like To that end, here are four steps that retail manufacturers can take to lower their credit card processing costs for their direct sales channel.

1. Make it clear that you control more of the supply chain than pure retailers

Most retailers must rely on a whole host of manufacturers and distributors to supply the products that they sell, and those manufacturers / suppliers operate with varying levels of reliability. From the credit card processor’s perspective, the reliance by the retailer on suppliers whom the retailer has no direct control over (and the credit card processor has no underwriting data on), creates uncertainty and risk. That risk comes primarily in the form of potential spikes in customer initiated chargebacks due to a retailer being suddenly unable to fulfill orders due to a supplier / manufacturer’s failure to deliver product.

With retail manufacturers who are retailing their own products directly, a credit card processor’s concern over a supplier suddenly failing to fulfill orders is minimized, as the communication between the manufacturer and retailer (which are now one and the same) is virtually instantaneous, and thus manufacturing delays will immediately prompt a halt in direct sales, or at a minimum disclosures about delivery timetables, which will generally prevent large-scale chargebacks.

Thus, when shopping for merchant services, it is important for retail manufacturer engaging in direct sales to make clear to the credit card processor that they are the manufacturer / supplier directly. This will lower the risk profile of the business from the perspective of the credit card processor, and generally enable the manufacturer to obtain lower credit card processing rates or alternatively better terms (e.g. same day payouts, no rolling reserve, etc.) than they would be able to obtain as a mere retailer.

2. Discuss your average inventory levels

If your business holds significant levels of inventory in advance of sales, this provides you yet another risk mitigation tool from the perspective of your credit card processor which most retailers (particularly drop shippers) simply do not have. For example, if your business generally has a week’s worth of inventory on hand, then your internal sales fulfillment team will not only benefit from instantaneous communication within your organization about those manufacturing delays, but will also have some padding insofar as they have first access to inventoried goods, to ensure that internally sold products are fulfilled on a priority basis. Once again, this added protection better ensures that your company will not face a rush of chargebacks associated with fulfillment or shipping failures, and should enable your business to obtain lower credit card processing fees as a result of this lowered risk profile, once properly communicated to the merchant services provider.

3. Outsource e-commerce fraud prevention technology.

Assuming that your internal sales channel is a relatively small portion of your overall sales volume, you will almost certainly not have the internal resources to regularly focus on minimizing e-commerce and phone sales fraud for your internally generated sales. Unfortunately, the incorporation of chip technology into retail environments is causing an increasing amount of credit card fraud to move to phone or e-Commerce transactions. And the mere fact that your own company’s website is of a lower profile than, say retailers like, does not mean you’re not going to face the same sorts of e-commerce fraud attacks. In fact, it is often the case that smaller manufacturer retailers are perceived as more vulnerable targets and consequently are more aggressively targeted by fraudsters.

Unfortunately, staying on the cutting edge of e-commerce and phone (aka MoTo) fraud protection is incredibly difficult, and requires constant updating technology to stay one step ahead of fraudsters. An apt analogy might be antivirus software. Whereas it might make some sense for IBM to develop its own anti-virus software for use on their internal servers, for even a mid-sized business, purchasing and running a third-party solution like Norton AntiVirus is much more effective from a cost and time perspective. The same is true of e-Commerce and MoTo fraud protection. Either use a product developed and maintained by your credit card processor or payment gateway provider, or purchase a third-party product, like Kount or MaxMind that has ongoing updates. These products can be integrated into your payment gateway or virtual terminal in a relatively seamless way, so that all transactions are automatically fraud scanned and risk profiled. And default rules within this software will do a decent job of declining or escalating certain transactions for additional manual fraud analysis, all without significant time spent by your team.

The reason this is relevant to your credit card processing costs is that fraudulent transactions can be very expensive. This is either because, if you didn’t catch the fraudulent charge on the front end and shipped the goods, you’re going to be out the cost of the good or product, and probably out payment, once the legitimate cardholder ultimately reports their credit card as lost or stolen initiates a chargeback or refund request to recover their funds. Not only this, but your credit card processor will then charge you a separate fee for receiving the chargeback (typically $30 – $50), or a separate fee for issuing the refund (typically $1 – $5). And at the extremes, a high chargeback ratio will cause your credit card processor to institute restrictions on your account (such as requiring a rolling reserve), or cause your merchant account to be terminated. So, spending the money to incorporate technology that will identify fraudulent transactions before they actually process through your credit card processing account, can ultimately be pretty significant savings for the manufacturer retailer. Using fraud prevention can be highly advantageous for businesses that offer a payment service, security in online shopping is of the utmost importance.

4. Bill Only Upon Shipping

A final way to minimize the risk of large numbers of chargebacks in your direct sales channel is to authorize the credit card transaction upon order, but not capture until the product is shipped. Authorization is just a temporary hold on the card that allows you, the seller, to know that sufficient funds are available. But it’s only upon capture that the transaction completes and you actually get paid.

Not capturing until shipping (as opposed to when the purchase is made) is a requirement with most low risk credit card processors (who can offer the very lowest fees), but is also good practice even with high risk credit card processors, because they further insulate the business from having large numbers of orders which have been paid for that they cannot fulfill in the event of a manufacturing delay. By delaying charging a customer until the order has shipped, you virtually eliminate supply chain and fulfillment concerns, which of course, both minimizes chargebacks and enables the credit card processor to offer you lower rates. Many pure retailers struggle to setup their billing in this way because, for example, they may owe the manufacturer payment upon order for the good. As the manufacturer retailer, however, your business is in a unique position to structure your direct sales billing in this way.

As both the manufacturer and retailer, your company has unique advantages relative to pure retailers that it should be taking advantage of. Among them is the ability to obtain cheaper credit card processing rates than you otherwise would as simply a retailer. But securing these cheaper rates does require effectively communicating those advantages to your credit card processor’s underwriting team, as well as being proactive in setting up your internal sales channel to maximize these advantages. If you’re in the process of looking for a credit card yourself, make sure to use this guide by before making a choice to ensure you’re getting a good deal. It’s a fact of life that sometimes credit card debt can become overwhelming for some and it seems unmanageable, however, Sofi’s credit card consolidation service may be able to help those who feel as if they are being drowned by debt.