What is a merchant account monthly minimum and how does a monthly minimum work?

A merchant account monthly minimum is the minimum dollar amount that a merchant will be charged within a monthly period. Merchant account monthly minimums can appear pretty complicated and confusing at first but actually become pretty transparent once they’re explained properly.

A monthly minimum is easiest to explain thoroughly if it’s exemplified, so here goes.

For the sake of this example I’m going to over simplify a merchant account's rate and fee structure and assume that it has only the following charges:

Discount Rate: 1.69%
Transaction: $0.25
Monthly Minimum: $20.00

If a business was to process 10 transactions totaling $500 in volume in a monthly period using the merchant account above their charges would be as follows:

Discount Charge: $8.45 (1.69% of $500)
Transaction Charge: $2.50 (10 transactions X $0.25)
Monthly Minimum Charge: $9.05 ($8.45+$2.50=$10.95 Minus the Monthly minimum of $20 = $9.05)

To arrive upon the monthly minimum charge you must first calculate the actual processing charges for the month. In this case the discount charge is $8.45, which is 1.69% of the total $500 processing volume and the transaction charge is $2.50, which is the transaction fee of $0.25 multiplied by ten transactions.

Once you’ve figured out your processing fees you can then calculate what your monthly minimum surcharge will be by adding all of your processing fees together and subtracting that number from the monthly minimum amount. In this case the total processing fees of $10.95 subtracted from the monthly minimum amount of $20 would yield an additional monthly minimum charge of $9.05.

If monthly processing fees total more than the monthly minimum amount there would not be an additional monthly minimum charge. For example, if a business’s monthly processing charges total $50 in a monthly period and the monthly minimum amount is $25, there would be no additional charge because processing fees already exceed the monthly minimum amount.

Essentially, a merchant account monthly minimum is a provider’s guaranteed receipt of fees. A monthly minimum is more accurately described as a surcharge than a fee unto itself because whether or not it will apply is dependent on processing volume.

Merchant account monthly minimums are often the easiest thing for providers to lower or waive. If your business’s processing volume is low or sporadic a monthly minimum charge each month will likely have affect you. If this is the case, you should work with your provider to lower or waive your merchant account monthly minimum.

Not all merchant account fees are counted against the monthly minimum amount. For example, most merchant account providers will not count a monthly merchant account statement fee or customer service fee against the monthly minimum. Taking this into consideration you can easily calculate the minimum amount that a merchant account may cost in any given month by adding the monthly minimum amount to any fees that are not counted against it. For example, a merchant account with a monthly minimum of $25 and a statement fee of $10 will cost a minimum of $35 a month even if it is never used.

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