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What is a merchant statement and how to read one

Saturday, January 03, 2015

Understanding the importance of a merchant statement for your business

Accepting payments is a big part of doing business. When you accept payments, you’ll often work with a payment processor to help facilitate the payment process. For business owners like you, you know how important tracking all of these transactions can be. To see all of the transactions that a credit card processor helps with and what they charge for their services, you’ll need to be familiar with a merchant statement.

In this article, we’ll learn more about merchant statements, including what they are, why they’re important, and the type of information you’ll encounter on them. To start, let’s talk about a merchant statement.

What is a merchant Statement?

A merchant statement is a document that your payment processor sends you every month. This document itemizes all the sales activities and transactions in your business during the month. A merchant statement can be called a merchant account statement, a credit card processing statement or a merchant processing statement.

On a merchant statement, you’ll see the total amount of transactions and fees on your account. Each transaction includes information about the payment card used, the transaction number and the amount of each transaction. You’ll also find the interchange costs you incur for each transaction. Now that you know what a merchant statement is, why should you review it? Let’s take a look.

Why should you review your merchant statement?

Your merchant statement is an important document to your business. It shows you all of your transaction activity and is a great way to track the growth of your business. This document is sent to you by your merchant account provider or payment service provider. It also shows two key pieces of information: chargebacks and credit card processing fees. Staying on top of both of these is essential to the success of your operation.


We have written extensively on chargebacks, and you should know that it is a customer’s claim that the product or service bought on their credit card wasn’t purchased by them, was purchased without their knowledge, wasn’t received or was unsatisfactory.

But how do you know when a chargeback takes place? That’s where the merchant statement comes into play. On it, you’ll find any notes of chargebacks and what to do about them. Payment processors may also send another notice by mail about chargebacks including specific instructions to fight back against them.

Credit card processing fees

When you review your statement, you’ll see the fees you pay for credit card processing. These fees can change regularly, so it’s important to examine your merchant statement to see the fees you’re paying. There are two parts to credit card processing fees:

  • Base cost: This includes interchange fees and assessment fees. Interchange fees go to the card-issuing banks, while assessment fees go right to the card companies. Unfortunately, these are fixed rates and you won’t be able to negotiate these fees.
  • Markup: This is the additional cost of working with a payment processor. Depending on how you and your payment processor structure your agreement, this cost could be a flat fee or a percentage. Markup is the only processing cost that may be negotiable. Now that you know why you want to check your merchant statement, let’s look at how to read it.

How to read a merchant statement

Taking care of business means accurately reading your merchant statement. Here’s how to do so:

Make sure you know your merchant number

At the top of your merchant statement, you’ll see a few pieces of pertinent information. It includes contact information for your merchant, your name and contact information and your merchant number. Take note of this number. If you need customer service or support, you’ll likely need to give your payment service provider this merchant number as part of the verification process.

Check the summary section

There’s typically a summary section on your statement. This section summarizes all of the activity on your account in the given time period, and you’ll see these line items on it:

  • Total amount paid
  • Third-party payments
  • Chargebacks/refunds
  • Fees
  • Total amount processed (based on previous elements)

Review the settlement report

The settlement report is the next section in a merchant statement. This section contains data on credit card payments by different card brands. You’ll see information detailing the payments your company received from customers using Visa, Mastercard, American Express and Discover. This report will include the number of transactions and type of transaction for each payment card network.

Determine processing fees

As mentioned before, you’ll want to inspect the merchant statement for your processing fees. You’ll want to look at these two pieces of information that give you your total fees – the base cost and the markup. Once you know these numbers, you’ll have a better sense of how much you’re paying your processing partner to accept credit card payments at your business.

Identify the pricing model

Next, you’ll want to identify the pricing model your payment processor uses. There are a few standard pricing models in the payments industry, including:

  • Interchange plus pricing – Interchange plus is a popular pricing model that takes into account the interchange rate and fees, plus a markup. The plus amount is a fixed markup that normally includes a percentage charge and a transaction or processing fee. The percentage charge is expressed in basis points, which is a calculation of a variety of factors, including the type of business, processing method, owner credit worthiness, and more. Then, a per-transaction fee is added to the basis point calculation to get the “plus” number calculation. Essentially, the “plus” amount is a fixed cost on top of the interchange fee. Generally, the payment processor’s markup is on a business-by-business basis. That’s because each business has different processing volumes, average ticket sizes and overall processing risks.
  • Tiered pricing – In this pricing model, the merchant services provider divides transactions into various buckets and charges a different processing rate for each tier. Transactions get placed into different buckets based on factors, including the card type and method of payment. The card brands do not have a say in this pricing model. There are three tiers in this model – qualified, mid-qualified and non-qualified.
    • Qualified – This tier is the safest tier of transactions. It consists of swiped or inserted debit card and non-reward credit card transactions. As you can imagine, these transactions are the least risky for the reasons listed above.
    • Mid-Qualified – This tier consists of transactions not fully qualified. These could be rewards credit cards, loyalty cards and keyed-in cards (instead of swiped or inserted).
    • Non-Qualified – This tier of transactions has the highest rates. Higher rewards credit cards, corporate cards or cards used in ecommerce transactions are all cards that could fall into this category.
  • Flat-rate pricing – The third common type of credit card processing pricing model is flat-rate pricing or blended pricing. Flat-rate pricing works as you’d expect. The merchant services provider charges the merchant a fixed percentage, or flat fee, for each transaction. Transactions are usually split up into card present (in-store), card-not-present (ecommerce), and manually entered (mail and telephone orders) transactions. In each category, the transaction type determines the flat fee. The issuing bank and credit card issuer have no bearing on the fee. In other words, the rate is based on the method used to charge the card.

Monitor merchant account transactions

In addition to getting a merchant statement, your payment processor should also give your company access to an online account. This account gives you visibility into all of your merchant account transactions and can even help you have a better grasp on your company’s total sales volume. It’s a good idea to monitor this activity regularly rather than just relying on the monthly statement. When you stay on top of these transactions, you’ll have a better sense of how things are operating, including staying alert when it comes to fraudulent transactions. Ongoing monitoring is the key to prevent fraud when it happens, rather than waiting for it to be too late.

As you can see, knowing the importance of a merchant statement and reading it correctly are vital to managing your business. Not only will you gain a better understanding of the transactions happening at your business, you’ll also be able to pinpoint the payment processing fees you’re incurring to see if it may make sense to switch providers or switch to a different pricing model. Payment processing is a necessary part of doing business, and the merchant statement is a great place to evaluate how you can work best with your payment processing partner.

Ready to work with a payment processor who knows small businesses like yours?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.