The High Risk Merchant Account: The Good, The Bad, and The Downright Ugly.
High risk merchant accounts can be fraught with complexities and difficulties. It is crucial that you are fully informed of its trappings and unscrupulous practices before you sign your contract.
To help you, here are 7 things you need to know before you apply for a High Risk Merchant Account.
- Be Aware of Longer Contracts
Payment processors typically lure you into longer than normal contracts (usually 3 years) to lock you in at a certain rate, one that only benefits them.
- Brace Yourself for Tiered Pricing
Here your payment processor charges you various fees per transaction. The processor also determines the riskiness of the purchase, thereby charging a higher rate.
- Look Out for the Automatic Renewal Clause
This clause allows for an automatic renewal of your contract to take place after the initial contract term expires (normally 3 years). The renewal not only applies to the contract but the early termination fee as well.
- Expect Early Termination Fees
If you choose to bow out of your contract before the expiration date, you will pay an early termination fee. This fee will be a pre-negotiated rate as stated in your contract.
- Prepare for the Liquidated Damages Clause
This is a type of “early termination fee” in which the provider has free reign to collect thousands of dollars in “damages” from the anticipated revenue loss due to your early cancellation.
- Watch Out for Account Freezes
If your provider perceives that transactions could potentially become chargebacks, it might take all of the funds out of your account and hold them for at least 90 days and sometimes up to 180 days.
- Beware of Chargeback Fees
In the event of a chargeback, the processor will hit you with a fee that is typically higher than that of a low-risk merchant.
Regardless of the formidable consequences that loom around the corner, there is hope. Fortunately, the payment processing landscape is changing, and more companies are catering to the growing high risk market, offering better rates, honest practices, and more reasonable fee structures.
Ultimately, you hold the power to research these companies thoroughly. Ask for references and referrals from your fellow business owners. Read all your contracts carefully and completely. The more information you arm yourself with, the less probability of finding yourself with an unsavory and potentially costly payment processing agreement.