A merchant servicer has many ways of protecting themselves. They can charge a higher interest rate, or have the customer pay into a reserve account. With a high-risk account, they need to be a little more progressive, as most of our everyday businesses are in the high-risk range. The merchant services need to protect themselves, without going overboard with their protection.
Different ways to go about it
The merchant’s account can be protected with a third-party indemnity. In other words, a co-signer of sorts. This helps to guarantee that the extra party involved will pick up the debt if the merchant fails or walks away. This gives the servicers a backup plan and helps to get things rolling for the business.
Capital Retention
In place of the reserve is also Capital retention. Meaning, something that the business has, and can be put up for collateral, in place of the cash reserve. It would have to be agreed upon by both parties, and at a said amount of time, after proving itself to the servicer, the property would be released and returned to the merchant.
Servicers have to be careful
It’s fine line to walk when asking for some kind of collateral for a merchant servicing account. Even if they ask for a cash reserve to be set aside if the amount is too much and for too long of a period, merchants have been known to get upset and take their business elsewhere. That doesn’t do the servicer a bit of good and takes up more time for the merchant searching for another service.
It behooves the servicer to take the time and get to know the merchant, even in a high-risk market, and see what they can to ensure they stay with them, and assist them with their business. It’s a win/win situation to take care of one another.
In some cases
It can be said, that in some cases, the merchant will be happy to pay a higher premium for a short period of time, and not do a cash reserve, or any of the other alternatives. As long as they get a reduction in the time allotted, and they are taken care of, they are likely to stick with their servicer and grow a relationship with them.
The Cash reserve
The cash reserve is not the only way to get a high-risk merchant account. The different choices will need to be worked out at the time of signing for the account. Make sure that everyone is happy with the decisions, and don’t be shy about having an attorney go over the paperwork to cover all bases. The more informed everyone is, the better it will be in the long run for everyone concerned.
Check all the options for the high-risk account and make sure that everyone is held accountable and not unreasonable for the decisions that have been made.