A merchant receives a billing statement and the rates do not reflect the fee schedule that was outlined. Another merchant receives the news that her funds are being held until the transaction’s authenticity can be verified and bank statements collected to ensure that she can cover any potential customer dispute or chargeback. Another business owner learns that his merchant account has been closed due to inactivity and excessive rejects.

As a merchant account agent for over the last decade, I have heard and witnessed the aforementioned scenarios and quite a slew of others – most of which could have been prevented by an enlightened merchant who researches the merchant account field before opening a merchant account and looks over the contract before providing a signature. Of course, it is also imperative to sign with a merchant account provider, noted for honesty, integrity, and full disclosure. But the purpose of this article is to outline steps you can take to avoid potential merchant account minefields.

1. Know Thy Rates

Before calling a host of credit card processing companies and asking about their fees, you should take some time and learn about all the possible fees. By knowing the full spectrum of potential charges, you will become more comfortable during any due diligence process. Moreover, you can tell which providers are not concerned about lying by omission.

There are many articles online that outline the complete list of merchant account rates, and it’s a worthwhile endeavor to take the time to become familiar with them, including why they’re being charged. However, you should understand that new fees can and will be introduced in the future regardless of provider. For example, several years ago, there was no PCI compliance fee and IRS regulatory fee on the merchant account landscape.

2. Get the Rates in Writing

You need to have a written record of the fees. You cannot rely on any verbal exchange about them as it will only result in a he said, she said stalemate. Once you decide on a provider, carefully review the contract, ensuring that the fees indicated match the proposal that you were initially provided.

3. Read the Contract, Including the Terms and Conditions

It’s not only essential to comb over the rates, but it’s also imperative to actually read the contract, including the fine print. You must gain a thorough understanding of your responsibilities as a merchant and cultivate an acute awareness of your provider’s responsibilities, and the action they will take should problems arise. The T&C section of the contract also spells out important information, such as whether a termination fee will be imposed should you close your account before a specified time.

4. Know Whether a Termination Fee Applies

I’m emphasizing possible termination fees because many of the complaints registered against banks and merchant account providers stem from imposed, “unknown” cancellation fees. A common lament among merchants: “My agent never told me.” Again, look at the contract and read the termination fee section, which should highlight the actual penalty amount, if applicable, and spells out the required time to keep your account open. If a provider wishes to waive a cancellation fee that is listed in the T&C, such verbiage should be added to the contract.

You should also know the steps that you will need to take to close an account. Predictably, you will either sign an official termination notice provided by your provider, or prepare a letter expressing your intention to close. Of course, always make certain that the provider receives any such documentation, preferably in writing, and get confirmation that the account is officially closed.
(You very well may have to return any free equipment you received, if applicable, during the closure process. Moreover, you will also have to contact any third parties that you have partnered with, such as American Express and/or your gateway provider to close those respective accounts.)

5. Focus on Your Projected Monthly Volume, Average Ticket, and Highest Ticket

This may be one of the most important categories to complete on the merchant account application, and perhaps one of the most difficult. All merchants are asked to project these figures because they are the limits that underwriters have to consider. A high ticket of $5,000, for example, engenders more risk than a high ticket of $50 should a customer initiate a dispute.

It is always best to OVER-estimate these amounts than underestimate them. If a merchant processes a transaction higher than what was specified on the application under the high ticket amount, the transaction will red flag and funds may very well be held. The merchant will then have to provide documentation regarding the purchase, and perhaps bank statements showing an ample balance to cover a potential chargeback. Your provider can even ask you to credit the customer back for the amount if they have concerns about the transaction itself, or a possible chargeback.

In order to avoid this scenario, you should inflate your projected monthly volume, average ticket, and highest ticket – within reason, of course

6. Perform Periodic Reviews of Your Merchant Account, Keeping an Eye on the Burgeoning Costs

It’s inevitable that your fees will increase. At the very least, Visa and MasterCard institute new fees from time to time, and processors typically pass through such costs to merchants. (As an agent, I have nothing but disdain for these Visa/MC increases, as I have no control over them, and of course, make no commission on them.)

Other fees can be introduced and affect your bottom line. Therefore, it’s imperative to conduct a periodic evaluation of your fee structure to ensure that your rates are still competitive. Towards this end, please review your monthly statement. I know they can be hard to decipher but at least you can determine your total processing costs as a percentage of your total transaction amount. Moreover, fixed costs, such as the monthly fee, are more easily identified.

While you’re looking at the rates, ensure that your system of accepting credit cards is still operational. So many folks don’t test their systems – especially those who rarely accept credit cards. It’s your responsibility to ensure that the mechanism for accepting credit cards works, and get in touch with your processor’s technical department if you see anything that may need debugging. Please note that if you have not been using an Internet account, for example, your provider may have implemented a security protocol blocking transactions after a period of inactivity (typically 90 days). Here, you can just call tech. support and the representative can remove the security block.

7. Use Common Sense

Too many merchants forget that their merchant account is indispensible for running their business. But the process of accepting credit cards should truly be on automatic, and there should be few glitches along the way. In order to foster smooth sailing, here are just a couple of common sense tips: a) Do not share your merchant account, and process transactions for a family member or friend; b) Notify your processor if you make any changes to the account, such as switching a bank account; c) Ensure that you have ample funds to cover any and all processing-related charges, such as fixed fees and even possible chargebacks; d) Properly care for any free equipment you receive and will eventually have to return; e) Close your account if you really don’t need it.

The aforementioned to-do list is not exhaustive but provides a firm foundation for you to accept credit cards – avoiding shaky ground between you and your selected provider, and common merchant account minefields.

Author Andy Lax is an Account Manager at IntelliCollect, a full service credit card merchant account provider that offers business owners the means to accept credit cards.

Best Merchant Account Credit Card Services in 2024