Whether you are looking to start your first merchant account or you have been accepting credit cards for years, this post is intended to give you some simple and effective credit card processing guidelines. Following these simple rules will ensure you don’t experience any unnecessary headaches with your merchant account.
- Don’t rush into an account. The credit card processing industry has many moving parts and there are quite a few things to consider when opening an account. Give yourself enough time to do the research necessary to make a good decision. Selecting the right service provider can make the difference between a great experience and a miserable one. Make sure you understand how you intend on accepting credit cards now and in the future. There are many different account types depending on how you interact with your customers. Choosing the right account type ensures the very best rates are available to your business. Make sure you understand how interchange works. The majority of the fees paid to process credit cards come from the credit card interchange networks. Understanding how the interchange fees are calculated will help you negotiate the best deal on the account. Make sure you ask questions on items you don’t understand and develop a working relationship with a service provider before you sign up. Make sure you select a provider that has a dedicated account representative for you to work directly with.
- Abide by the rules. The merchant service agreement outlines the rules and regulations for the use of the account. Make sure you understand the length and term of the contract. Make sure you understand what you have been approved to sell. During the application process you indicate the products and/or services you intend to sell. The rules for a merchant account stipulate that you are only allowed to accept credit card payments for the products/services approved on the application. Selling something else with the account can lead to the account being terminated and the business placed on the MATCH list.
- Angry customers can hurt your business. Make sure that you respond to customer billing complaints immediately. Customers that can’t get their billing complaints resolved with the business will contact their credit card issuing bank or the credit card association and initiate a chargeback. Excessive chargebacks can also lead to the account being closed by the processor not to mention hefty fines for each occurrence. The best defense is a a good offence. Makes sure your customer service number is displayed on your customer’s credit card statement along with your business name. That way they will call you first. Make sure you answer their call and help resolve their issue.
- Stay within your limits. Your merchant account will have certain limits established for the high ticket amount and total monthly volume that can be processed with the account. These limits are known in the industry as soft limits. There is always a little leniency for exceeding the limits on the account but it is always a good idea to know your limits and be proactive if you intend on exceeding them. For example if you know you are going to exceed your high ticket amount with a certain sale, call in for authorization first. This demonstrates good management and will make it much easier to increase your limit amounts in the future.
The terminated merchant file, TMF or match file is a database that is maintained by MasterCard and Visa banks (also known acquiring banks) for the purpose of recording businesses that violate their merchant services agreement. This database serves as a reporting agency for the merchant services industry.
All merchant service providers, as a requirement of underwriting, will query new merchant applications against the terminated merchant file to determine if there is a match. The query will include the business name, business address and principal applicant(s) first and last name. If a match is uncovered the application will be declined.
What to do if you are on the terminated merchant file
You must first identify the acquiring bank that placed your business on the terminated merchant file. They are the only entity that can make changes to the listing. Once you identify the acquirer, it’s important to be persistent in requesting the reason for the inclusion on the TMF. It may take multiple calls to identify the right department to gather the information. Remember “kill them with kindness”. You are undoubtedly frustrated with the situation but airing your frustration will only prolong the process and increase your frustration. Once you understand the circumstances that led to your listing, do everything in your power to correct it and have the listing deleted. This may include legal counsel so make sure your hire a specialist if you choose this direction.
How to avoid being included on the terminated merchant file
- Read your merchant account contract carefully and avoid any violations.
- Make sure you remain within the soft limits of your merchant account.
- Make sure you list your business phone number within the descriptor that shows on your customer’s credit card statement. This gives them the information they need to contact your business about questionable charges. You do not want your customers to call the bank directly.
- Provide exceptional customer service and put your customers first. Consumers have a lot of power if they choose to contact their issuing bank to complain about your service and charges.
- Don’t commit fraud.
- Never run a sale for someone else’s business!
Match or The Terminated Merchant File (TMF) – Beware
The Match file or, more commonly know as, the terminated merchant file or TMF is a database that the credit card processing industry uses to log merchants that have violated the terms of their contact and have subsequently been terminated.
Similar to how the major credit reporting agencies track consumer behavior in an effort to establish a credit profile. The Match or TMF database is used to flag business and principals that have miss-managed their merchant account in the past and been terminated.
When an application for merchant services is received the processor will query the Match or TMF database to determine if the business or principals have been terminated in the past. If a possible match entry is indicated it is the responsibility of the processor to determine if the entry is for the same business and/or principal(s) seeking account approval. If an exact match for business or principal is determined the processor will then inverstigate the reason for the match entry. At that point the account will be declined or a conditional approval will be granted which states that full approval is subject to the pervious processor removing the Match entry.
Once a business or principal is placed on the Match or TMF it is extremely difficult to get a merchant account approved. It is also very difficult to get a business or principal removed from the match or TMF database.
If you find that you or your business is on the Match file it is very important to determine what processor placed you on the file. Next you will want to contact that processor to determine the reason. Once you have determined the reason it is essential to rectify the situation, if possible and request removal from the database.
Merchant account early termination fees | How they work
Most every merchant account contract will include an early termination fee. The early termination fee is charged to the business if the business closes the account before the end of the contracted term. It is important to understand what the early termination fee is before accepting the terms of service from your merchant service provider. The early termination fee will be spelled out in the service agreement so be sure to review the contract before signing.
Important things to know about early termination fees:
- It can be negotiated
- It can be calculated multiple ways
- Be careful with refusal to pay
Negotiating your early termination fee
Some merchant service providers will allow for the early termination fee to be negotiated. Typically if you select an Independent Service Organization (ISO) to set up your merchant account the early termination fee is at the discretion of the sales representative. For example, if the business goes “out of business” it is reasonable to expect that the early termination fee to be waived. Make sure to have this conversation up front and get the agreed terms in writing.
Early termination calculation
The early termination fee can be a set amount, a prorated amount based on the remaining contract term or a combination of both. As an example we will use the following to illustrate how the early termination fee is calculated.
- 3 year contract term with the early termination fee equal to the greater of $250, or $35 multiplied by the number of months remaining in the then-current term.
- Contract approved 01/01/2011
- Termination on 04/01/2011
Early termination fee = $1,155 (33 months remaining X $35)
Be careful if you decide not to pay
It can be frustrating if you are charged an early termination fee for terminating a contract with a merchant service provider for a justified reason. It can seem unfair and unjust especially if you feel the service you were provided was unacceptable and you terminated to end a bad experience. It is commonly thought that a simple solution is to close the account for which the termination fee will be deducted from. I caution this approach as it allows for your provider to add your business to the terminated merchant file (TMF). The TMF is a file that represents businesses that have been banned by the industry. Once a business has been added to the TMF it is very difficult to get it retracted. Additionally, it makes it next to impossible to get a new merchant account set up.