The fact that you’re reading this means that you don’t want to get hosed, or at least were curious enough to see what I’m going to talk about. The main few points that merchants should be aware of are “hidden” fees and then the overall contract length including the cost to buy out of the contract early. The other things to watch for are that the rates you were quoted are the same rates in print.
The application process is a lot like applying for a line of credit with the bank. Many merchants don’t understand the risk that the the “card acquiring” bank has when signing a new merchant. This is because I believe most merchants are honest upright people who would not purposely engage in credit card fraud. It’s the small percentage of crooks that ruin it for the rest of us. Either way, the risk on the part of the bank is that you charge all of these credit cards, never deliver the product or service, then skip town.
You can see that this isn’t something you would naturally think of, but hopefully will help you understand that the underwriting and approval process is more complex. This is also the reason that banks will require a personal signer on the account as a guarantor.
I’ve occasionally had the business owner let me know that under no circumstances would he be willing to sign a personal guarantee for a company that he owned 100% of. His thought was that this was why he created an LLC, to protect himself. As much as I also run all of my business through an LLC for similar reasons, the thing to understand about this situation is that bank would just as soon say “no” to you than approve you. If you think you are doing the bank a favor by processing with them, you’re not. They process millions if not billions of transactions and run through multiple billions of dollars through their system, so no one merchant can really influence them to a large degree.
Now, there are some exceptions to this including scenarios where no two business owners have 50% or more ownership or there are multiple owners including possible shareholders in the case of a publicly traded company. At that point, there is not an expectation that signatures for multiple individuals be collected. But this is usually also indicative of a company that is more stable and not prone to fraud at a credit card level.
Aside from the personal guarantee, the majority of the information collected is not subject to such drama, and even though I do occasionally come across a merchant who is not comfortable with the personal guarantee, it usually is not a big deal. And the personal guarantee is an indicator that you plan on being honest and forthcoming in the manner that you use this account. There are very few banks that would extend a line of credit or give a business loan without collecting personal information from the principal including a signature of guarantee. It’s much the same in the payment processing industry.
The other two components I mentioned were the contract length and “hidden” fees. Usually the fees are never hidden and by law are to be disclosed on the application. The thing is if you don’t understand what a fee is and don’t ask, you may be in for a surprise when it comes time to reconcile your statement against what you were quoted. Watch for these fees and if you wonder if a fee will apply to your account or not, you should ask your merchant account representative.
Contract length is usually 2 years and early termination fee is right around $300 or so depending on who you go with as far as providers. This is disclosed in the fine print. If you get an application without the fine print, you should ask for it, or find another provider. I have some providers I work with that calculate this early termination fee based on how many months you have left of the contract and a multiple of the monthly fee. This can be expensive if you end the relationship quickly. However, this same provider also does a 45 day trial so you have time to process transactions and get a statement back to confirm things are as you were told.
I don’t mean to sound negative here because the reality in my eyes is that there are a lot of honest trustworthy representatives out there. Because it is a lucrative business, however, it may also attract individuals that do not have the merchants’ best interests at heart and will sign as many accounts as they can to match bonuses / quotas their provider has given them. This means that the truth doesn’t always come out accurately to the point where the business owner understands.
As far as pitching myself, I’ve been in the industry working mostly with online businesses since 2001. I’ve setup hundreds of merchant account and I do get a lot of word of mouth referrals which for me is an indication that I’m doing the right things. If you’d like to “interview” me, you’re welcome to call me 800-893-9540 which is a number only I answer. I take seriously the obligation and trust that my merchants give to me and the companies I recommend, so I am the only one that answers my phone and I return all of my messages.
I hope for the opportunity to work with you on your merchant account, at least for an opportunity to give you a quote on services. I wish you the best with your business.
Kind regards,
Brian Armstrong
800-893-9540
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