Billback & Enhanced Billback: Why Merchants Should Beware

One of the most confusing billing methods in the credit card processing industry today is the billback (BB) method. Chances are, you don’t even know what it is. What’s worse is that billback spawned an offspring called enhanced billback (EBB), which is even more complex than the original.

To add even more confusion, the names of these types of billing methods change regularly. It’s almost like the processors do it on purpose to keep you in the dark.

If you don’t read any further, my only suggestion would be for you to avoid billback and enhanced billback.

However, some of you may already be under billback and not even know it. If that’s the case, then I suggest you keep reading … or send me your statements, and I’ll let you know.

First things first, let’s define billback and enhanced billback.

Billback Definition

Billback is a billing method in which the credit card processor charges the merchant a low initial fee for processing, but later bills the merchant additional fees based on the actual transaction processing costs.

Billback billing methods are not only confusing for business owners, who aren’t given an honest quote upfront, but these plans also tend to include a high markup for the processor, rendering billback plans more expensive for businesses compared to other more transparent billing models.

To understand the definition of billback, just take a closer look at the name billback. It means that you will be billed back for some stuff that you weren’t billed for in the first place.

Some other names for billback include:

• Enhanced Reduced Recovery (ERR)
• Blended Rate
• Mixed Rate

How Billback Works

Here’s how billback works.

The processor quotes you a flat rate of, say, 1.79% for ALL of your transactions for the month. But, if you know anything about interchange fees, then you know that not all transactions are created equal. Some transactions will have higher rates than others, even higher than 1.79%. That’s just the way VISA and Mastercard made the system. For example, a rewards card will have a different interchange rate than a debit card.

So, if the processor is charging you 1.79% for every transaction, but not all of those transactions end up qualifying for that rate, then how does the processor recoup the difference?

The processor ends up charging you 1.79% for every transaction for that month, regardless of what interchange category the transaction qualifies for. Then, in the following month, they look back at the last month’s transactions to see what rates those transactions actually did qualify for and charge you for the difference on your next statement.

So, in effect, you end up needing two months’ worth of statements to figure out what the hell the processor has charged you in total for that specific month. Think that’s bad? Let’s define Enhanced Billback, aka Enhanced Reduced Recovery.

Enhanced Billback Definition

Enhanced billback is similar to regular billback, but think of the “enhanced” part as an enhanced margin. As in more profit for the processor.

The only difference between billback and enhanced billback is that the processor “enhances” the billback part with their own little margin. I’m not even making this stuff up—the word “enhanced” literally means that they enhance the billback with a higher margin. If you’re thinking this is outrageous, you would be correct!

How to Identify Billback

I’m sure by now you’re thoroughly confused, and your eyes have probably glazed over. Trust me, even I had a rough time understanding this, but I suggest that you don’t over-analyze it, and don’t freak out. Here’s a visual to help you identify if you’re under billback or enhanced billback:

(Click to Enlarge)

Notice the “BB” in red? That stands for billback. Notice the Statement Period in green? It’s for May, but notice the billback charges in blue? They’re for the previous month, April.

You’ll have a similar statement if you’re under enhanced billback, except instead of “BB” it will have the acronym “EBB.” The same is true with Enhanced Reduced Recovery (ERR).

So, all you have to do is search for those terms on your statement, and you’ll be able to quickly find out if you’re on billback or enhanced billback.

What To Do If You’re On Billback Or Enhanced BillBack

Forunately, not all credit card processors use billback pricing, and it shouldn’t be difficult to find a processor that offers a much fairer pricing model, such as interchange-plus pricing.

If you determine that you are, in fact, on billback pricing, I highly recommend that you contact your processor and have them change it, or use a processor that doesn’t use billback.

A good place to start looking at processors that don’t do billback is our list of best credit card processing companies for small businesses. Or if you want to change your contract, you can read our post on how to negotiate lower processing fees.

Finally, if you’re not sure if you’re getting a good deal or are unsure of the next steps, feel free to reach out to me directly for a free consultation (at [email protected]).