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 Mon, Aug 24, 2009 @ 02:43 PM
Merchant account chargebacks are an increasingly expensive problem not only because of the fees charged by the processor, but also because of the time and energy that a merchant must invest to try to win a dispute. A thorough chargeback prevention plan can help limit the number of chargebacks that your business receives. Below are some tips and best practices for preventing 3 common types of chargebacks:
Preventing customer-related chargeback issues:
Use a recognizable DBA name - if the DBA is not easily recognizable to a cardholder on their statement, they may not recognize the charge and may issue a chargeback.
Include a phone number on cardholder statements - this ensures that cardholders can easily contact you with any questions regarding a charge.
Clearly post policies - make sure that policies such as returns and damaged merchandise are clearly visible and easy to understand.
Work with customers to resolve issues - it sounds simple but if you don't communicate with customers to resolve issues, you're forcing them to resort to a chargeback to solve their problem.
Proactively communicate with customers - keep customers informed on the status of their orders. Many customers won't bother to contact you if an order doesn't arrive on time, instead they may issue a chargeback.
Preventing chargebacks from processing errors:
Use address verification service (AVS) for not-present transactions - never process a card-not present transaction without an AVS match.
Swipe all card-present transactions or get a fully legible manual imprint.
Don't re-run a decline transaction - if a credit card is declined, don't run it again. Instead, ask the customer for another card or form of payment.
Never split transactions - always authorize a credit card once for the total amount of the transaction. If you accidentally undercharge, cancel the transaction and run another transaction for the entire payment.
Clear credit card batches daily - posting transactions to your customers' accounts quickly while the purchase is still fresh in memory lowers the chance that they won't recognize the charge and issue a chargeback.
Preventing fraudulent chargebacks (for card-present transactions):
Obtain and compare signatures - if a customer's signature on the receipt is significantly different than the one on the back of the card (or if the card is not signed at all) the transaction may be fraudulent.
Verify the number on the credit card machine matches the card - after obtaining an authorization, make sure that the number displayed on the machine matches the number on the card.
For more information on how to prevent chargebacks, you can also check with your processor, review the VISA and MasterCard websites and also look at resource sites like CardFellow for more great information.
Courtesy of MerchantCouncil.Org
To learn more about chargebacks or to find out if you're getting the best rate on your merchant account, click here for a free rate analysis.
Posted by Jeff Shavitz on Tue, Aug 18, 2009 @ 08:37 AM
Each merchant service provider has underwriters that are responsible for determining the risk factor associated with certain types of business and accounts. When determining whether a business type is unacceptable or restricted, a provider considers criteria such as:
- Chargbacks: Certain business types are prone to having a high occurrence of chargebacks to sales. Any business type that has a typical chargeback ration that is 1% or higher, is usually considered high-risk or unacceptable by most credit card processors.
- Credit Card Fraud: Credit card fraud is more common in certain industries because of the products or services offered. Any business type that has a higher than normal fraud rate will be considered high risk or unacceptable by many providers.
- Charging too far in advance for services: Merchants that charge for products or services too far in advance heighten their exposure to excessive chargebacks. Subscription publications, online memberships, and other similar services are most affected by this guideline. Typically, a provider will limit the time in advance that a merchant is able to bill their customers to around 4 months.
- Target Market: Specifically, businesses with an international client base are considered high-risk. Exporters, international freight forwarders, and shipping businesses can all be considered high-risk merchants due to their international client base.
- Business Operation: Businesses that use outbound telemarketing, door to door sales, multi-level marketing, and third party order fulfillment are all considered by most providers to be high risk merchants. This type of businesses operation increases the likelihood of chargebacks for various reasons.
- Type of Merchant: Card-present merchants are always considered lower risk than card-not-present merchant accounts. For example, a courier services that utilizes a wireless terminal to swipe cards at a customer's residence may be considered high-risk, when the same business would be prohibited if they were to take credit card numbers over the phone.
- Legality: Businesses that offer services that are illegal, or are closely related to illegal activities, will be considered high-risk or prohibited by most providers.
- Marketing: Products or services sold using marketing that exaggerates results are at a high risk for chargebacks. Customers will ultimately issue chargebacks once they realize that the product or service that they purchased does not deliver the results promised in the marketing.
For a list of typical 'high-risk' business types or more information on credit card processing for high-risk merchant accounts, check out Alternative Merchant Processing at http://www.ampworldwide.com