How to Avoid Hidden Transaction and Debit and Credit Card Processing Fees

According to the 2021 Legal Trends Report, the ability to accept online payments has become a standard feature legal clients are looking for. With the tools that facilitate these payments becoming increasingly common across the legal sector, it’s important to understand the differences between law firm payment processing providers—and not just when it comes to avoiding hidden transaction and debit and credit card processing fees. 

There are two important considerations that all law firms should keep in mind when choosing a payment provider. The first is that not all third-party processors offer integrations with practice management software, which can make account reconciliation trickier. The second is that the charges incurred for accepting payments can also vary significantly. 

Understanding law firm payment processing and debit and credit card processing fees is one of the most challenging aspects when deciding to accept online payments. Fees and variable transaction rates can be confusing and overwhelming. Even for firms that have moved ahead with an online payments solution, their bills from their payment processing provider can come with rows upon rows of minor transaction fees. 

Those fees are easy enough to ignore in the moment. However, when you do the maths at the end of the month, you might realise you’ve spent hard-earned money on unexpected and unnecessary payment and card processing fees.

Law firm payment processing software like Clio Payments makes it easy to pay and get paid by streamlining the payment process, and offers simple, transparent pricing. Your clients can pay electronically using a debit card or credit card, Pay by Bank, or with Apple Pay and Google Pay, getting you paid faster.

What is a law firm payment processing provider?

Law firm payment processing providers allow lawyers to accept debit and credit card payments. When a client presents their card to pay a bill, the payment processing software contacts the card issuer to verify whether the card is valid. If there are enough available funds to cover the cost of the transaction, then it proceeds and the payee receives a receipt of the payment. 

Pay by Bank transfers is a transfer of funds from one bank account to another. This is done through internet or phone banking. 

In addition to providing clients online payment options, firms using a law firm payment processing solution can be confident that they’re compliant with client accounting rules. 

Online payment systems also enable passive bill collection. This feature allows legal clients to pay remotely at their convenience, and removes the need for someone at the law firm to be physically present to process the payments.

Picking the right law firm payment processing provider

Collecting payment for the work you do is integral to the success of your business, so choosing the right law firm payment processing provider is critical. For lawyers, this means ensuring that you choose a payment processor that is not only safe and secure, but complies with SRA regulations on client accounting. 

Maintaining compliance is imperative since you must keep earned and unearned funds separate in accordance with client accounting rules. Accordingly, the law firm payment processing provider you use must accept client funds payments and keep them separate from your firm’s operating funds. The client account should therefore be protected from all third-party debiting, including processing fees and chargebacks. This means all client payments are deposited in their entirety, and transaction fees and chargebacks are never pulled from the client account.

The cost of your law firm payment processing solution is another important factor to consider. Enabling your clients to pay their bills is the lifeblood of your firm’s success, and the cost of collecting these payments can add up over time. Even small differences in the fees that processors charge can have a major impact on your bottom line. 

Fortunately, you have options—options that can reduce risk and make those monthly bills from your  law firm payment processing provider more predictable and easier to understand.

4 steps to avoid paying unnecessary payment and debit and credit card processing fees

1. Understand the different types of fees

Multiple fees are often involved in every transaction that is processed. Per-transaction fees for debit and credit cards processing are typically 1.5% to 3.5% of the transaction, though some cards may charge higher fees. Fees for bank transfers are typically lower, and may be up to 1%. Monthly fees will vary between providers, so ensure you factor this cost in when making your decision. Clio, for example, does not charge any monthly fees for our payment processing solution, but many other providers do. Be sure to ask any potential provider if they charge a monthly fee. 

What is an interchange rate?

An interchange rate is the fee that you—as a merchant—must pay with every debit card or credit card transaction. These rates are set by the financial institution or issuer of the card. Fees can vary depending on the type of card, and the type of transaction; standard cards such as a basic Visa card will have a lower interchange fee than a specialised card. Similarly, smaller, everyday transactions like groceries will have lower fees than those associated with high-end purchases like airline travel.

When working with a law firm payment processing provider, these rates are typically charged by the card issuer to the payment provider. The cost is then passed on to the merchant.

Because interchange fees only become fully visible after the transaction—typically when the merchant receives their long, multi-line statement from their payment processor—interchange fees are difficult to predict, and thus can be considered “hidden” fees. 

2. Avoid using a law firm payment processing provider which charges extra fees

Some processors will charge an additional fee on top of per-transaction and monthly fees. 

Note that advertised rates may not tell the full story, either. While some processing providers may advertise a low per-transaction rate, this may not be representative of the total cost of the service. 

Always ask if the rates that are being advertised apply to all card types and transactions, and make sure you understand exactly what you will be charged. You should not need to do extensive calculations or to earn a degree in accounting to understand what you will be charged. 

To avoid the cost of a payment processor holding you back, you should compare pricing plans between providers to ensure you’re getting the best return on your investment and avoid being locked into expensive plans. Since multiple fees are often involved, look for law firm payment processing tools that offer full transparency into fees, as well as comprehensive reporting, so you can make the best decision for your firm. 

As a baseline, expect any debit or credit card transaction fees to be between 1.5% and 3.5% of the transaction, though some cards will have higher rates. Bank transfer fees are typically lower (up to 1%).

3. Look for simple, transparent pricing plans

With all the possible variations in fees, it can be helpful to look for legal payment processing providers offering simple, transparent pricing. Clio’s plans are straightforward: the ability to accept payments is included in your Clio Manage subscription and and you pay a simple per-transaction fee and simple-to-understand card rate—no hidden costs or monthly fees involved. If a pricing plan seems convoluted, it is probably best to avoid that provider to ensure you’re not hit with unexpected or hidden fees.

When it comes to law firm payment processing specifically, the most effective way to mitigate risk and ensure you know what rates you’re paying on every transaction is to ask detailed questions upfront.

Don’t simply assume all providers operate in the same manner. For example, Clio does not pass through any interchange fees, and you won’t be hit with any unexpected charges either.

4. Ask questions

The choice of a law firm payment processing provider is a major decision, and one that will impact your business well into the future. As you go through the process of selecting a tool, ask lots of questions to make sure you understand exactly what you are—and aren’t—getting. 

First and foremost, make sure your provider gives you straight answers on payment processing fees. Ask what their rates are, and ask if they charge different rates for different types of cards, or different types of transactions. Ask about additional fees or charges beyond the ability to accept payments online, and ask if PCI compliance and chargeback assistance is included. 

Payment processing fees are just part of the equation. Even if you’re satisfied with your provider’s answer on payment processing fees, make sure the solution is right for you. Does the payment processor in question integrate with your legal practice management software? (Clio Payments, for example, is part of our complete legal practice management solution; there’s no need to integrate another software.) Does it allow for payment plans and offer client accounting compliance? Do you feel assured this solution is safe and secure for your clients? These are all important questions for legal professionals to ask when choosing a provider.

Getting out of a plan with hidden fees

If your firm is planning to start accepting online payments, or you’re using a law firm payment processing solution that’s costing you more than you expected, you can get up-and-running with Clio Payments quickly and easily. You can set up your account and start accepting payments in minutes, ensuring there’s no interruption to your firm’s operations. If you’re already a Clio customer using another payments provider, check out this guide to activating Clio Payments.

Note: Clio Payments is available to customers in the UK

We published this blog post in May 2023. Last updated: March 6, 2024.

Categorized in: Business, Legal Accounting