If you’ve started an online business, by now you’ve probably figured out that in order to receive payments from your clients, you need to open a merchant account.
A merchant account is what allows you to receive credit and debit card payments online from clients all over the world.
While the process of opening a merchant account doesn’t have to be strenuous, going at it without the right knowledge can make the process long, annoying and complicated.
When you decide you want to begin receiving credit card payments from your clients and you contact a payment processor, it needs to ensure that as a merchant, you are a reputable business. This process of underwriting can be difficult and complex. It includes operational, technical and legal checks that is all conducted by the merchant account provider. This makes the time between when you decide to open a merchant account and the time you receive your first credit card payment, a lengthy one.
One of the most complicated steps in the opening of a merchant account is determining the payment service provider (PSP) that best suits your business’ needs. There is nothing more frustrating and costly than having your account set up, begin running your business, only to have your merchant account closed because of a disagreement with your merchant account provider about the terms and conditions .
One of the main causes for arguments between merchants and their merchant account providers is over volume commitments.
Are you running volume as you committed?
Some merchant account agreements stipulate volume commitments that the merchant must meet. In other words, a merchant must process at least a minimum amount of money each and every month in order to maintain the specified terms. If the merchant doesn’t meet the specified minimum volume, then the discounted rate received can be increased or have penalties applied.
If you are a start-up, it is hard to know whether your business will be processing a certain volume of transactions or not, therefore it is recommended that you enter into an agreement that has no volume commitment.
In some instances, the volume commitment required by the payment processor is a fair one. For example, an established business that processes millions of dollars in sales every month may wish to enter into an agreement that includes a minimum commitment in exchange for reduced rates. A merchant account provider will often roll out the red carpet for high volume merchants, however, if the merchant does not meet the minimum volume committed, the payment provider could end up losing money. For a small and mid-size business, this may not be the case and we recommend that you sign an agreement that does not include minimum volume commitments.
Whenever you enter into an agreement with a payment processor, you want to go in with full knowledge of what you are signing. Surprises are not good when it comes to contract clauses with your merchant account provider, and the last thing you want is to find out about a clause you weren’t aware of that will adversely impact your business, after your account has already been set up.
One thing to keep in mind is not to confuse volume commitments with monthly minimum fees, which are standard fees to help the processor cover costs of maintenance, security and management of the system. A monthly minimum is standard practice and it is fair, as long as it is reasonable and discussed up front.
Merchant account providers are in business to make money and merchants should understand that there are huge costs involved in programing, security, manpower, licensing, AML procedure, integration, etc. and those costs will be passed on to the merchant.
When setting up your merchant account, be sure to read the fine print and be aware of every clause on the agreement, so that you only commit to clauses that you feel confident about.