Posted by Jeff Shavitz on Tue, Jan 26, 2010 @ 09:04 AM
Figuring out how much a new merchant account will cost your business in credit card processing fees starts with something called the "effective" rate. The term effective rate is used to refer to the collective percentage of gross sales that a business pays in credit card processing fees.
For example, if a business processes $10,000 in gross credit and debit card sales and its total processing expense is $329.00, the effective rate of this business's merchant account is 3.29%. The qualified discount rate on this account may only be 2.25%, but surcharges and other fees bring the total cost over a full percentage point higher. This example illustrate perfectly how focusing on a single rate when examining a merchant account can prove to be a costly oversight.
The effective rate is the single most important cost factor when you're comparing merchant accounts and, not surprisingly, it's also one of the most elusive to calculate. When shopping for a merchant account, the effective rate will show you the cheapest merchant account option. And after you start accepting credit cards it will allow you to calculate and forecast your total credit card processing expenses.
Calculating the effective rate of a merchant account for an existing business is easier and more accurate than calculating the effective rate for a new business because figures are based on real credit card processing history rather than forecasts and estimates.
That's not to say that a new business should ignore the effective rate of a proposed merchant account. It is still the most important cost factor, but in the case of a new business the effective rate should be interpreted as a conservative estimate.
It's pretty simple to calculate the effective rate for an existing merchant account. All you need to do is figure out the percentage of expenses over gross credit and debit card sales. To do this, divide your gross sales by your total processing costs for a given month and then multiply that number by 100. For example:
$10,000 in sales / $329 in fees * 100 = 3.29%
If the effective rate ends up being substantially greater than your qualified discount rate, it's time to examine your account and make money-saving adjustments. Using the example above, let's say the qualified discount rate for this account is 1.69%. That would mean the effective rate of 3.29% is more than double the qualified discount rate. In a situation like this, the chances are very good that there are a lot of mid and non-qualified surcharges being applied.
If you notice a large discrepancy between the qualified rate and the effective rate of your merchant account, call your provider and inquire how the gap can be closed.
To calculate the effective rate for a new merchant account from existing credit card processing history, apply your business's processing statistics such as the percentage of mid and non-qualified transactions, PIN debit transactions versus signature, etc, to the rates and fees of the new account. This will yield a pretty accurate estimate of the cost associated with the new merchant account.
Calculating the effective rate of a merchant account for a new business is a little tougher because of inconsistent buckets, and the lack of credit card processing history from which to judge how a business's transactions will qualify. Nevertheless, making a conservative estimate of an account's effective rate is still vital.
To calculate the effective rate of a merchant account for a business without credit card processing history you will need to estimate a few figures such as the business's average ticket, processing volume, whether a PIN pad will be used to accept online debit transactions and more.
Any merchant account provider that's courting your business should be able to speak with you to gather the information they need to offer you a reasonably accurate effective rate. If they're unable to do this or they don't know what an effective rate is, they're probably not the best candidate for your new merchant account provider.
Article courtesy of: Merchant Council (www.merchantcouncil.org)
To learn more about effective rates or to find out if you are paying the lowest possible rates on your merchant account, click here for a FREE rate analysis.
Posted by Jeff Shavitz on Mon, Jan 04, 2010 @ 03:56 PM
PCI Compliance Explained. For more information on PCI Compliance or to find out how much you can save on credit card processing fees by switching to CCS,
click here for a free rate analysis.
Posted by Jeff Shavitz on Tue, Dec 15, 2009 @ 09:07 AM
When it comes to merchant accounts and credit card processing, knowledge and tools translate directly to valuable money saved. Take the time to educate yourself about different rates and fees, work with prospective providers and ask questions.
Personal Credit & Merchant Accounts
A merchant account is essentially an open line of credit that is issued to a merchant by an acquiring bank.
Bankruptcy - If you are in active bankruptcy a processor will likely decline your application. If you've had a bankruptcy that has discharged you should be able to obtain a merchant account assuming that you have re-established your credit since the bankruptcy has been discharged.
Collection Accounts - If you have debt that has gone to collections a processor will likely deny your application for a merchant account. You should be able to get an account after the collection reports are reconciled and the notifications have fallen off of your credit.
Lack of Credit History - A processing bank does not need to see multiple satisfactory lines of credit or a ten-year credit history to approve a merchant account application. However, they do need something on which to base credit-worthiness. If you don't have any credit history whatsoever a processor will likely deny your application for a merchant account.
If you fall into one of the categories above, don't give up. Some providers specialize in helping merchants with less than perfect credit. The most important thing is to be honest about your credit standing with providers up front. This will save time and energy in the long run because you won't waste time working with providers that can't get you approved.
Declaring the Correct Credit Card Processing Limits & Tickets
Failing to declare the correct processing volume, average ticket amount, and transaction percentages on your merchant processing agreement can cause significant headaches and may result in your merchant account being terminated or worse. Even if you guessed at these numbers there's no need to worry.
Processing Volume - Processing volume is the amount of funds that the processor will allow you to charge in Visa and MasterCard sales in a monthly period. Think of the processing volume as the limit on the line of credit. If you exceed your declared processing volume the processor may impose surcharges, penalties, or they may take action to stop the violation.
While moderately exceeding declared processing volume may not lead to any recourse from the processing bank, grossly exceeding processing volumes can be a serious issue. On the bright side, it's not difficult to declare the correct processing volume and providers are usually very helpful. The first important point to make is that there are no penalties for not meeting the processing volume that you declare on your merchant processing agreement. This means that you can declare a processing volume of $5,000 a month, not process a single penny, and you will not be penalized. Granted, this wouldn't be good for cash flow, but you would not face penalties or rate changes from the processor.
Average Ticket - The term average ticket is used to refer to the dollar amount of an average MasterCard or Visa sale. When applying for a merchant account some merchant service providers ask that you declare an average ticket limit instead of an average ticket amount. This means that instead of declaring your mid-range sale amount, you should declare the highest sale amount that you expect. Some providers will even ask for both of these pieces of information. In this situation you will be asked to declare your average ticket amount and also the highest overall ticket amount that you expect to process. This is usually done to accommodate businesses that have a relatively low average ticket but process a large sale every now and then. Processors pay close attention to the average ticket amount. If you process a transaction that is in gross excess of the declared average ticket amount you may be subject to penalties such as having the funds from the transaction held for as long as 6 months, having your account closed, or both.
Declaring an Incorrect Average Ticket or Processing Limit - Don't forget about these two figures once you begin to process credit cards. If after you begin processing you realize that you underestimated one or both of these figures, contact your provider as soon as possible to discuss your options. Providers can often have the limits on your account raised, or they can take others actions to avoid any service delays or penalties.
Increasing Your Average Ticket and Processing Limit - For most businesses the average ticket amount will not change over time because the business continues to sell the same products and services. However, the processing limit usually needs to be raised as a business grows and sales increase. Most processors will allow the processing limit to increase naturally over time. Processors understand that as a business grows the gross sales will increase and credit card sales will increase as well.
Contact your provider to request an increase in your processing limit. Depending on the amount of the increase that you're requesting, getting your processing limit increased may be as simple as filling out a quick change form. In some cases the provider may suggest that you open a new merchant account.
Declaring the Correct Transaction Percentages
Processor need to know how you will be transacting your credit card sales. It's a good idea to declare whatever processing method percentages that will afford you the most flexibility with your merchant account. This is especially important if you think that you will be processing a somewhat diverse array of transaction types. For example, it may be fine for a retail store to declare a 90% swipe rate and a 10% key-entered rate, but a pizza restaurant would run into problems if they were to declare the same percentages. The pizza restaurant may have to declare 50% swiped transactions, and 50% key-entered transactions, making them ineligible for a retail merchant account.
Processor Recourse and Merchant Account Penalties
The merchant processing Agreement (MPA) that you sign when opening a merchant account is a legal document that gives the processor many rights over your processing relationship.
Most of the time the processor is well within the guidelines set forth in the MPA and it's the merchant's fault for violating these regulations. It's absolutely crucial to know the boundaries and regulations described in your processor's MPA and to take them very seriously. Violation of processing limits, average tickets, and general misuse of merchant processing abilities are the most common issues, and many of these circumstances can be avoided by reading your MPA and asking your provider to clarify anything that you're unsure of.
For more information about applying for a merchant account or to find out if you are paying the lowest possible rate on your current merchant account, click here for a free rate analysis.
Posted by Jeff Shavitz on Tue, Nov 17, 2009 @ 09:01 AM
Convenience Fees: What are They, and Can You Charge Them
What is a convenience fee?
It varies slightly from one card brand to the next, but a convenience fee is basically a charge in addition to the original transaction amount for the privilege of being able to use an alternate payment method. It sounds like the same things as a surcharge, but it's not that easy.
By VISA's guidelines, surcharges are different than convenience fees. By MasterCard's definition "any fee charged in connection with a Transaction that is not charged if another payment method is used" is a surcharge. So technically, VISA says that convenience fees and surcharges are different and MasterCard says they're the same thing. Are you confused yet?
Surcharging customers for paying with a credit card is considered discrimination based on payment type. A convenience fee is a charge for offering customers another payment option that is separate and in addition to standard payment methods.
For example, a retail merchant account that takes credit cards, cash and checks as payment can't charge a convenience fee on credit card transactions. This would be considered payment method discrimination because credit card payments are not offered as a bona fide convenience and the fee isn't applied to all methods of payment. On the other hand, a utility company that primarily accepts payment via mail could charge a convenience fee on in-person credit card payments that they offer as a bona fide convenience to customers.
Can I charge a convenience fee, and if so, under what circumstances?
Different card brands have different rules on convenience fees, but VISA provides the most thorough guidelines.
VISA states (source: Card Acceptance and Chargeback Management Guidelines for VISA Merchants):
For merchants who offer an alternative payment channel (i.e., mail, telephone, or e-commerce) for customers to pay for goods or services, a convenience fee may be added to the transaction amount. If the merchant chooses to asses a convenience fee to its customers, the merchant must adhere to the following rules:
• The fee is being charged for a bona fide convenience of using an alternate payment channel outside of the merchant's normal business practice
• The Fee:
o Must be disclosed to customers as a charge for alternate payment channel convenience
o Is applied only to non-face-to-face transactions
o Must be a flat or fixed amount regardless of the amount of payment due
o Is included as part of the total transaction
o Cannot be added to recurring transactions
o Is assessed by the merchant that provides goods and services to the cardholder and not by a third party
• The customer must be given the opportunity to cancel prior to the completion of the transaction
If you do fall into the business category that can charge a convenience fee on VISA transactions, you'll notice that in addition to the other rules, the fee must be a flat rate regardless of the order total. This differs slightly form MasterCard's rules.
MasterCard (Source: "MasterCard Rules" Section "5.9.2 Charges to Cardholders")
MasterCard doesn't go into as much detail about convenience fees as VISA, they simply state that:
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments. A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing. For purposes of this Rule:
• A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
• The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the transactions of the Merchant.
While the rules for applying a convenience fee are in line with VISA, MasterCard allows a flat, tiered or percentage-based fee structure.
Discover (Source: "Discover Operating Manual", Section: "2.3 Surcharges")
Discover doesn't specifically give mention to convenience fees, but they do cover surcharges. For Discover, the two terms are interchangeable.
You may assess a surcharge on a Card Sale conducted using a Credit Card provided that (i) the amount of the surcharge may not exceed the Merchant Fee payable by you to us for the Card Sale, and (ii) you assess surcharges on card sales conducted using other credit cards accepted by you. You may not assess a surcharge or other penalty fee of any kind on any other type of Card Transaction or for any Card Sale conducted using a Card other than a Credit Card.
Discover states that "you assess surcharges on card sales conducted using other credit cards accepted by you." With this Discover has effectively deferred to other card brands for rules governing surcharges. Therefore, to surcharge Discover you'll also have to surcharge the other card brands that you accept - which will bring you back to VISA's more strict guidelines that differentiate between convenience fees and surcharges.
American Express (Source: "American Express Operating Procedures for US Merchants" section: "1.7 Prohibited Use of the Card" and "8.5 Apartment Rentals")
AMEX doesn't specifically mention surcharges in the "Prohibited Use of the Card" section of their operating procedures but they make specific reference to this section from the "Apartment Rentals" section of the same guide stating that:
"The prohibition in subsection 1.7 "Accepting the Card - Prohibited Uses of the Card" against imposing restrictions, conditions, or disadvantages (e.g., fees, surcharges, "convenience" or "administrative" fees, penalties) when the Card is accepted will apply whether or not your Rental Establishments impose them on any Other Payment Products."
There actually is no reference in subsection 1.7 that mentions surcharging, but it's obviously implied. In light of this, it's apparent that American Express also generally rules against convenience fees. If you'd like to make sure, we suggest that you contact AMEX directly, reference your merchant identification and request their convenience fee policy for your business's situation.
Courtesy of: merchantcouncil.org
For more information on convenience fees or to find out how much money you could save with Charge Card Systems,
click here for a free rate analysis.
Posted by Jeff Shavitz on Fri, Nov 13, 2009 @ 11:15 AM
Charging a Minimum on Credit Card Purchases
One of the most contested issues in credit card processing is whether a merchant should have the ability to impose a minimum purchase amount on credit card transactions. At one point or another we've all walked into a store to make a quick purchase and after seeing a sign that read "minimum credit card purchase $10," realized we didn't have any cash.
Merchants set a minimum on credit card purchases to avoid losing money on smaller transactions where processing fees are larger than the profit made on the sale. While it makes business sense to do this, three of the four major card brands specifically forbid doing so and violating these terms can be detrimental to their merchant account.
Visa says "Always honor valid cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing maximum or minimum dollar amounts in order to accept a Visa card transaction is a violation of the Visa rules."1
MasterCard says "A Merchant must not require, or indicate that it requires, a minimum or maximum Transaction amount to accept a valid and properly presented Card."2
Discover says "You may not require that any Cardholder make a minimum dollar purchase in order to use a Card and you may not limit the maximum amount that a Cardholder may spend when using a Card except when the Issuer has not provided a positive Authorization Response for a Card Transaction."3
American Express doesn't specifically mention guidelines regarding minimum purchase amounts but they do publically discourage any practice that would hinder card acceptance. American Express has also gone on the record saying that they don't condone the practice.
Credit card companies discourage minimum purchase amounts because they don't want to lose money when consumers are excluded from using their card. Similarly, merchants don't want to lose money on merchant account fees when customers use their card to make a small purchase. Who's right or wrong is a debate that can go on forever. What matters is who has the power and in this case it's the credit card originators like Visa and MasterCard.
Some merchants will continue to dictate a minimum on credit card purchases regardless of whether the practice is allowed.
courtesy of: merchantcouncil.org
For more information or to find out if you are paying the lowest possible processing fees on your merchant account, contact CCS for a FREE RATE ANALYSIS.
Posted by Jeff Shavitz on Wed, Nov 11, 2009 @ 09:03 AM
Merchant Account Holds
An extremely important but seldom talked about topic regarding credit card processing is that of merchant account holds. One of the most financially devastating things that can happen to a business is for a processing bank to freeze its merchant account. If this happens to your merchant account, you won't be able to access the account and your funds from open authorizations will be held without deposit for an undisclosed period of time. This means that you can't accept new credit card transactions and the income from recently processed transactions will not be deposited for days, weeks or longer.
There are two basic reasons that cause a merchant service provider to apply a hold on a merchant account. The first reason is breaking terms agreed upon in the merchant service agreement. The second is suspicious processing behavior.
To open a merchant account a business must sign a merchant service agreement. This agreement outlines the rules, fees, and limitations in respect to processing volume and average ticket size for the merchant account. If a business breaks any of the provisions in their merchant service agreement, the processing bank can hold or even terminate their account. In the case of an account being held, it will be unusable for as long as it takes the processing bank to investigate the breach of the agreement and make a ruling on whether or not to reinstate or terminate the account.
The following is a list of common reasons why businesses are found in violation of their merchant service agreement.
Excessive chargebacks
Chargebacks are taken very seriously by processing banks, and excessive chargebacks are a leading cause of merchant account holds and closures. A common misconception regarding chargebacks is that if they're won they don't count against you. That is simply not the case. Win or lose, a chargeback is a chargeback, and too many will lead to your merchant account being held, closed or worse.
Processing in excess of declared processing volume and average ticket
When you apply for a merchant account, you have to declare your business' average monthly processing volume as well as your average ticket. Many people forget about these numbers when they begin processing, but rest assured that processing banks don't.
These two figures are far more than a formality. Processing in excess of your declared volume or average ticket can lead to your account being held or terminated.
Using a merchant account to accept payment for undisclosed goods or services
Merchant accounts aren't a free pass to accept credit card payments for whatever you're selling on a particular day. When you applied for your merchant account, you would have had to provide a basic description of the goods or services that you're selling. Using the account to accept payment for anything outside of this description would leave you in violation of you agreement and open to recourse by the processing bank.
Using a merchant account to accept payment for other businesses
Merchant accounts are issued to individuals or businesses for use by that party only. Using the account to accept payment for another person or business is strictly forbidden. Once discovered, this behavior will almost certainly lead to the account being terminated.
Suspicious processing behavior is another leading cause of merchant account holds. Holds for this reason are especially tough because they typically applied by the processing bank without notice to the merchant. Merchant usually realizes that their account has been held when they try to charge a credit card or when they stop seeing deposits from credit cards sales on their checking account ledger.
Preventing holds due to suspicious processing activity means avoiding behavior that will trigger a processor's fraud alert. Being aware of a few general guidelines while you're processing transactions will help you to accomplish this.
Contact your processing bank's risk department, not your sales representative, prior running unusually large transactions. Attempting to process a single large transaction beyond what is normal for your account will almost certainly lead to a hold.
Keep your processing bank informed on changes in your business that will affect your processing behavior. For example, if a bait shop that has been selling only small bait and tackle items for years begins to sell deep sea fishing equipment, their average ticket that has been $15 may spike to $500 or more overnight. This drastic change may lead to their processing bank holding their merchant account until the reason for the ticket increase can be investigated. Notifying your processing bank of changes in your processing behavior will allow them to adjust the ticket and volume figures for your account before there's an issue.
Don't process excessive card-not-present transactions with a card-present merchant account.
Aside from the expense of mid and non-qualified surcharges that you would incur, keying-in too many transactions on a merchant account that was set up for mostly swiped transactions will lead to a fraud alert. If you're business has a decent amount of card-present and card-not-present transactions, opening multiple merchant accounts will help to avoid any fraud alerts and it will save you on processing expenses.
If your account does end up getting held by your processing bank, there's not too much that you can do except let the process run its course and focus on damage control. The process will take time. In extreme cases where the cause of the hold is not deliberate and a substantial amount of funds are being held, seeking legal council from an attorney that specializes in bankcard law would be an advisable step.
Courtesy of: MerchantCouncil.org
For more tips and advice on managing your merchant account,
download a free copy of our Guide To Merchant Best Practices.
Posted by Jeff Shavitz on Fri, Nov 06, 2009 @ 12:57 PM
The subject of credit card processing is confusing. Information about credit card processing can vary from one source to the next and even from one provider to the next. It's tough to know who to listen to and what can and can't be taken for granted.
To set the record straight, the list below addresses five costly myths and misconceptions about credit card processing that every business person should know and understand.
Merchant service agreements with a contract terms guarantee rates and fees for the length of the term.
Wrong. A contract term is not a guarantee that merchant account fees and rates will not change within the contract period. In fact, processing agreements with terms of a year or more provide the same protection against rate and fee changes as a month-to-month processing agreement. Merchant service agreements have multiple clauses that enable the issuer of the account to change rates and fees under certain, broadly interpreted conditions.
Agreements with a contract term will automatically switch to month-to-month when the initial term expires.
Wrong. Some merchant service agreements have clauses that automatically renew the contract period when the previous period expires. In order to terminate an agreement that automatically renews, a merchant must cancel a merchant account within a short window of time that is usually 30 days or less. If an agreement is not cancelled within the specified window, the agreement is renewed for another full term.
Credit and debit cards swipe at the same low discount rate.
Wrong. Swiped debit transactions carry significantly lower processing fees than swiped credit card transactions. To appear more competitive, some merchant service providers will advertise their swiped debit rate without including the higher rate for swiped credit cards. When researching merchant service providers make sure to get both sets of fees.
Merchant accounts have hidden rates and fees.
Not really, by law merchant service agreements must disclose all processing fees but there's nothing that says they have to be easy to see. Merchant accounts don't have hidden rates and fees, just fees that merchants overlook in the merchant service agreement. When opening a merchant account it's crucial to read every single word in the agreement and ask about anything that you don't understand. This can time consuming because some agreements can be 20 pages or more, but it's worth every second.
Monthly minimum fees are based on gross processing volume.
Wrong again. Merchant account monthly minimum fees refer to the fees paid by the merchant to the provider. They don't refer to gross processing volume. For example, if a merchant has an account with a monthly minimum fee of $25, the merchant must accrue at least $25 per month or they will be charged the difference between their actual fees and the $25 minimum.
Courtesy of: MerchantCouncil
For more information or to find out if your current rates for credit card processing are as low as they could be, get a free rate analysis today.
Posted by Jeff Cohen on Mon, Oct 12, 2009 @ 03:08 PM
A proactive and thorough plan to prevent and deal with
chargeback fraud is a must-have for any business that accepts credit cards. Without an effective plan, chargebacks can become costly and a high chargeback ratio can even prompt a processor to close a
merchant account.
There are various reasons why cardholders issue chargebacks. Some of the most common reasons for chargebacks are failure to receive a product in the specified time, or products being misrepresented by marketing (leading to customer dissatisfaction). Whatever the reason, the loss associated with a chargeback is magnified if a customer issues a chargeback after they've already received products or services.
If a customer disputes a charge for a product or service that they've already received, the merchant stands to lose capital, profit and product. If the product or service is expensive this combination can amount to a substantial loss. An effective chargeback plan lessens the frequency of chargebacks and increases the likelihood of winning disputes when they are issued.
Chargeback fraud is difficult to combat with even the most comprehensive chargeback plan. Chargeback fraud occurs when a cardholder issues a chargeback with the intention of extorting products or services from a merchant. In a fraudulent chargeback scenario, a cardholder has no basis for issuing a chargeback. The cardholder's motivation for issuing the chargeback is to steal products or services from a merchant by taking advantage of the chargeback system.
Unfortunately, banks often unwittingly facilitate chargeback fraud by immediately reversing disputed transactions prior to contacting the merchant involved. By simply issuing a chargeback the cardholder has the battle half won. When a cardholder issue a fraudulent chargeback, they've received the product or service from the merchant, the bank has given their money back and they haven't even had to supply proof to support their chargeback claim. If the merchant doesn't respond to the bank's chargeback notice within a specified time frame (which usually doesn't exceed 10 days), the cardholder will succeed in abusing the chargeback system for personal gain at the expense of the merchant.
Merchants have taken issue with the inherent problems and bias in the chargeback system for a long time but it doesn't look like banks will be changing their policies any time soon. In the meantime, it's imperative to include methods for preventing and winning fraudulent chargebacks in your chargeback plan.
The best weapon against fraudulent chargebacks is thorough sales documentation including sales receipts, signatures and proof of delivery (if applicable). Customers that issue fraudulent chargebacks have no substantial proof to support their claim. By maintaining complete sales records you greatly increase your chances of winning these potentially costly chargebacks.
If your business doesn't have a chargeback plan, make one. If you need some pointers to get started, there's helpful information available on chargebacks at merchantcouncil.org. Of course, even the greatest chargeback plan is ineffective if it's not followed for every credit card sale. Once you create a solid chargeback plan, be sure that everyone who deals with customers is familiar with it.
To learn more about our Merchant Account Services or to find out if you're getting the best rates on your current merchant account, click here for a free rate analysis.
Posted by Jeff Shavitz on Mon, Oct 05, 2009 @ 11:16 AM
Tips To Keep Your Account in Good Standing
There are several key Merchant Account 'Mistakes' that may cause a processor to close a merchant account - This blog post addresses these activities, and what innocent businesses can do to avoid having this happen to them.
Any type of unusual processing activity
Unusual processing activity is the primary reason why processors close merchant accounts. Unfortunately, the definition of unusual activity is open to interpretation. Generally, common sense and a willingness to err on the side of caution is the answer to avoiding having your merchant account closed for unusual activity.
Too many chargebacks - won or lost
Regardless of whether a chargeback is won or lost, too many in a relatively short period of time may cause a processor to close a merchant account. It is important to take steps to limit the number of chargebacks that you receive and to correct any issues that have lead to chargebacks in the past.
Selling products or service other than those declared on the merchant service agreement. If a processor discovers that you are selling products or services that are substantially different than those indicated on your merchant service agreement, your account will likely be terminated.
Processing transactions for other people or businesses
Merchant account factoring occurs when someone uses their merchant account to process transactions for another individual or business. If a processor discovers that a merchant account is being used for factoring, the account will be closed and the owner may be subject to fines or even criminal charges.
Unusually high average ticket
Processing a single transaction that is much larger than average can lead to your merchant account being closed and your funds being held. When you opened your merchant account you declared an average ticket size. Processors remember this number and they'll shut your account down if you process transactions far in excess of this amount.
Unusually high processing volume
Similar to excessively large tickets, if you process too much volume in a monthly period a processor can close your account and hold your funds. Processors will expect you to process amounts that are consistent with what you stated on your merchant account application. Anything far above this number will cause them to close your account. An exception to this rule is seasonal swings that can explain higher volume. For example, a retail store will be expected to process larger volumes around the holiday.
Unfortunately, processors close merchant account every day because the owner of the account made an innocent mistake. The problem is that it's tough for processors to determine who is truly innocent and who has ulterior motives. Taking steps to avoid the reasons above is a very good start to keeping your merchant account in good standing.
For more information or to find if you're getting the best rate on your merchant account, click here for a free rate analysis.
Posted by Jeff Shavitz on Thu, Oct 01, 2009 @ 08:32 AM
Finding the correct credit card processing equipment for your business can prove to be almost as tricky as finding the correct merchant account. There are a lot of different credit card processing options available and there are pros and cons to each method of processing.
Important Pointers about Credit Card Processing Equipment
Avoid proprietary equipment - Certain types of credit card terminals and processing equipment will only work with a single (or very few) credit card processors. This type of equipment is called proprietary equipment. If you purchase a proprietary piece of equipment you will be married to the processor that the system is compatible with.
If you ever want to switch merchant account providers you will need to purchase a new piece of equipment instead of reprogramming your existing equipment. Credit card processing equipment and software made by major manufacturers such as Hypercom, Verifone, and Lipman Nurit are compatible with most processors. Most of the machines made by each of these three companies can be reprogrammed if you ever need to switch credit card processors.
Purchase equipment from a reliable source - The best place to purchase credit card equipment is from your provider when you setup your merchant account. Many providers will offer an equipment discount to merchants when they set up a merchant account. If you do find a better deal elsewhere, be sure that you are getting what you pay for. Many merchants find that purchasing credit card machines from unverifiable third parties, like those found on eBay, can be an expensive headache. Credit card processing machines and equipment can be very different even if they have the same name and appearance. Like any electronic device, it's what's on the inside that counts.
Credit card terminals require a certain amount of memory in order to operate on a processor's systems. Terminals that are sold second-hand may not have enough memory to meet the demands of the new programs that processors are building. Also, it's always a good idea to get some kind of warranty or price protection on equipment. If you purchase your equipment through your provider they should be happy to assist you with terminal issues if they should arise.
Use surge protectors - Credit card machines and terminals are very sensitive to power fluctuations. Their circuitry is very delicate and even a small power surge can disrupt a terminal's function. If the circuitry of a terminal is damaged the current batch and transaction information may be lost as well. Unfortunately, in a situation like this a $400 credit card machine may be the least of your worries. To avoid having your terminal fried in a thunderstorm or by a random power surge, you should never plug your terminal directly into a wall outlet. Instead, plug your credit card terminal into a quality surge protector.
Avoid leasing equipment unless necessary - The option to lease credit card terminals and machines has been around since before the advent of the Internet and the subsequent fierce competition among merchant service providers. This competition has brought the price of equipment down to a point where it can costs as much as 5 times the original purchase price of a piece of equipment to buy out a lease agreement. Lease agreements are typically contractually bound for a four-year period or longer.
For more information or to find out if you are getting the best rate on your merchant, account, click here for a FREE RATE ANALYSIS today.