EIRF: A nasty four-letter word for merchants

by Neil Moncrief on June 16, 2009

In this economy, nobody wants to pay more than necessary for credit card processing. But don’t waste time yet looking for a new processor (unless you plan to try me) just to save a few basis points. Stay put for now, and keep reading. I’m going to tell you about a simple policy change you should make at your business. If you’ll follow my instructions, I guarantee you’ll see an immediate savings every month, and it’ll be more than just a few basis points!

This scenario occurs in nearly every business, but particularly in e-commerce businesses. A customer places an order for one or more items. Let’s say the total cost of the order is $179.50. You process their credit card and collect an authorization number. At some point before you’ve shipped the order and captured your payment, the customer calls back to make a change. Maybe they want to change the shipping address or method. Or maybe they want to change the order itself – more products, less products, or just different products. Regardless, they change something, and that changes the total cost of the order. You probably see this everyday, and you make the changes without ever complaining.

As you already know, the original authorization is good for any dollar amount up to, but not exceeding, $179.50. Any additions to the order that drive the price up will require you to get a new authorization. But what do you do when the changes cause the total cost to drop? If you’re like many merchants, you leave the authorization as-is, and you later collect the new total by manually entering the reduced dollar amount. After all, the original authorization is still valid for up to $179.50, right?

If your merchant account utilizes Cost Plus pricing, you’ve almost certainly seen line items that say “Electronic Interchange Reimbursement Fee” (EIRF) and the corresponding higher discount rates. If your merchant account utilizes 3-Tier or 4-Tier pricing, you may not have seen the term, but you’re still paying for it every month among those transactions downgraded to Non-Qualified.

The Electronic Interchange Reimbursement Fee is assessed when an authorization is settled for any amount other than the authorized amount. This usually occurs when the price dropped due to a change, and the original authorization was used to capture the funds. Let’s look at the $179.50 authorization again. Suppose the customer changed from Second Day to Ground shipping to save $10. When you capture $169.50, your transaction will be downgraded due to EIRF. Cost-Plus accounts will see the actual EIRF rate on their monthly statement. Those accounts with 3-Tier or 4-Tier rate structures will see the transaction downgraded to Non-Qualified. Either way, this will cost you an additional 1% of the total, on average. That means you’d pay about $1.70 more than necessary in fees, just because of the change in shipping rates.

“OK, so how can I avoid these additional charges?” you ask. It’s simple. Make it a habit (or better yet, make it a policy) to get a new authorization number whenever you change an order’s total. Yes, you’ll be charged an additional item fee, but that shouldn’t be more than $0.25. For large orders, in particular, the savings will really add up.

Was this cost saving tip news to you? Hopefully not! If your agent is watching your back, he/she should have already talked to you about it. If not, I’d appreciate the opportunity to earn your business. If you have questions about this or any other topic related to credit card processing, please don’t hesitate to give me a call.

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{ 6 comments… read them below or add one }

Brandon Eley June 23, 2009 at 1:46 pm

Great tip! I knew about canceling and resubmitting after 24 hours due to being downgraded but I had never thought of this. Thanks for the info.

Greg Sackenheim November 18, 2009 at 1:39 pm

Neil, good information. Thank you for the straight forward, real life example. Appreciate your taking the time to put this information out for us in the field.

2tor September 8, 2010 at 10:28 am

BTW, nice article. Whole reason I stopped by was I was trying to figure out why someone had EIRF all over their statement. This helped a lot.

Thank you.

JOHNNY WARREN December 22, 2010 at 11:31 pm

Thanks for the information on EIRF that was great. Please sent me info to my email address adove.

Rich Immitt October 11, 2011 at 1:46 pm

Good stuff. Very informative.

Jami January 19, 2012 at 6:47 pm

Good explanation however this is not the only reason a transaction would downgrade to EIRF. As you mentioned above, the authorization amount and settlement amount not matching is one. Transactions can also downgrade to EIRF if they are not settled within the time frame required by Visa. And they can also downgrade to EIRF if the billing address does not match up when keying a transaction in. You can find this information on Visa’s interchange chart under the primary qualifications. This does not apply to MasterCard transactions as they do not have an EIRF interchange category.

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