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.