What is an SSL (Secure Socket Layer) certificate and will you need one if you are selling online? These two questions are explored in this post.
First let’s discuss the SSL certificate. You will only need an SSL certificate if you are setting up and ecommerce website or a website you intend to sell products and services with. When you set up your ecommerce website you will select a company to host your website so that it is accessible from the internet. Once hosted, all of your individual webpages are then accessible to your visitors via a non-secure connection to the webserver where your website is hosted. Presumably your visitors will shop your site and place the items they wish to purchase into your site’s shopping cart. Once the visitor decides to checkout this is where the SSL certificate comes into play. The checkout page asks the customer to provide their credit card information to complete the purchase. This information must be encrypted before it is sent to the merchant account for processing. The ecommerce SSL certificate is the encryption service that makes sure the information collected from your customer is secure while it is communicated to and from your merchant account.
The SSL certificate is set up by your hosting company and is a requirement if you intend on processing your customer’s payments on your website. You do have the option to process the payment on your merchant service provider’s website. In this scenario the customer is redirected to your processor’s website (secure website) when they decide to checkout. The credit card payment information is gathered on the secure site and transmitted to your business’s merchant account for processing. Upon completion the customer is redirected back to your company site.
Both of these processes ensure your business is PCI DSS compliant. The decision is whether you want to provide a seamless checkout process for your customersor not.
If you are interested in selling your products and services online, check out our helpful guide - Sell your products online – A guide to ecommerce.
Annual payment processing is one of the more difficult features to get approved when setting up a merchant account. The difficulty in getting this feature approved is due to the increased risk of liability for the processor. Risk of liability is increased for the processor based on the additional time the customer has to chargeback against the business.
With a typical merchant account, products and services are provided in full at the time that the credit card payment is collected. At that point the customer has up to 18 months to initiate a chargeback if the business does not fulfill their obligation to provide the product or service promised. In the situation of an annual payment the business is providing the product or service over an entire year. Therefore, the timeframe for initiating a chargeback is extended an additional 12 months for a total of 30 months of liability for the processor.
It is very important for a business looking to offer annual payment options to disclose this intent to the processor in the application process. Failing to disclose intent and proceeding with annual payment processing can result in a violation of the merchant account contract. Violating the merchant account contract will lead to the account being closed, the business entered on the terminated merchant file and funds for the business held by the processor.
Each business will be evaluated independently to determine if annual payment processing can be approved. Items that increase the odds of a successful approval include:
- Strong credit of the applicant(s)
- Strong business financials
- Strong business history
If you would like a consultation to determine if your business can be approved for annual payment processing please click on the link below and provide us with your contact information. A representative will be in touch shortly to begin the process.
A seasonal merchant account is an account that is only open for certain months of the year. The seasonal merchant account is set up to functional only in the months that the business is operational each year. For example a golf course in Colorado may only be open from May to September. Given this scenario it is advantageous to have the merchant account suspend each year from October to April saving the business owner the fees associated with keeping the account open in the months where revenue is not being generated.
Other examples of seasonal businesses:
- Christmas Stores
- Sumer Youth Camps
- Alpine Ski Hills
- Fireworks Stores
- Ice Cream Shops
- Lawn Care and Landscaping
- Trade Shows
When setting up a seasonal merchant account you will indicate which months you prefer to have the account open and closed. During the months in which the account is closed your business will not incur any fees related to the account unless there are annual fees that are set to be billed in a month that the account is not active. Make sure to ask for full disclosure of all the fees involved with the account.
Some processors will also allow for the business to turn the account on and off numerous times each year. This is especially helpful for businesses that need a merchant account for trade shows that happen multiple times a year.
When signing up for a merchant account it is important to understand the merchant account contract term. The term defines the length of time that the contract is enforceable. Knowing the contract term length and early termination fee will help you determine the commitment you are agreeing to.
There are typically 3 types of merchant account contract terms offered.
- No Minimum Term
- Specified Term
- Auto Renew
No Minimum Term: This contract term is open ended without a termination fee. The merchant is free to terminate the contact at any time without penalty.
Specified Term: This contract term is for a specified period of time. The default contract term is usually 3 years. The contract term will be specified in the terms of agreement. If the merchant terminates before the specified period of time a termination fee will be assessed. If the merchant terminates after the contact term has expired there is no penalty assessed.
Auto Renew: This contract term is for a specified period of time and upon completion of the period the contract renews itself automatically for another full term. So if the merchant does not notify the processor of the intent to terminate at the end of the original term the contact will renew automatically and lock the merchant into the terms for another full period.
In conclusion it is important to understand the merchant account contract terms offered by the provider you are considering. Failing to address this item upfront can lead to a frustrating situation down the road.
Signing up for a merchant account is an important step in extending the payment options your business offers. Signing up for a merchant account also carries financial responsibilities for the owner(s) and business. It is important to understand that a merchant account is a line of credit and will be underwritten with the processing bank as such.
The personal guaranty section of the application states that if the business suffers loses that cannot be covered by the business, the owner(s) personally guaranty repayment of such loses. This section is included in the application as protection from the high amount of risk the processor assumes from businesses that mismanage their account.
What to do if you would prefer not to sign a personal guaranty?
Most merchant service providers have alternate methods to evaluate the financial stability of a business and therefor waive the personal guaranty. The most common options are as follows.
- Business Financials
- Personal Letter of Credit
- Reserve Amount
Business Financials: A business that has been operating longer than one year can supply financial documentation supporting the strength of the company. Typical documentation includes income statements, profit/loss statements and balance sheets. Documentation prepared by a third party is always a plus.
Personal Letter of Credit: A personal letter of credit can be extended that promises a specific dollar amount for a specified amount of time. The terms of the promise to pay are outlined in the credit letter and both parties have to agree for the letter to be binding. This is often a good solution if the business financials do not satisfy the requirements to waive the personal guaranty.
: In the event that neither of the aforementioned solutions will satisfy the processor requirements to waive the personal guaranty, a reserve amount might. A reserve amount is a specific dollar amount that is held by the processor. A reserve amount will also have specific terms that outline how much will be held and how it will be collected. Typically a percentage of each settlement is withheld until the reserve is fully funded. Once the reserve is fully funded the processor holds the money in the event that the business is unable to fulfill the obligations of the account. The reserve amount is fully refundable if there are no contract violations.
Do you currently have an approved merchant account and looking to sell new products or services in your retail store or on your website? This post is intended to outline the rules imposed by your processor with regard to changing the products or services your business sells.
When your business originally applied for your merchant account you were required to give a description of the products and services you intended to sell. This product and service description was used by your processor to determine the SIC code for your business. The SIC code associated with your business determines the risk category used to underwrite and approve the account.
It is important to understand that the risk associated to the products and services you sell is significant to the processor that approved the account as they are ultimately responsible for any chargeback liability. Certain products represent less charge back risk, examples include; shipping, restaurants, screen printing, office supplies etc. Other products represent higher risks for chargebacks, examples include; electronics, travel, pharmaceuticals, auctions etc. It comes down to the fact that some products have a higher level of fraud associated to them as thieves attempt to acquire them.
In conclusion if you are looking to change or add new products and services to your business you will need to determine if the new offering resides in the same SIC code classification for the account that you were originally approved for. If they do you can usually sell and accept payment with your current account. If the new or changed products and services are outside of the SIC classification of your current account you will need to apply for a new account. If you are unsure, it is advisable to contact your processor. There can be serious consequences if you violate your merchant services agreement by selling unapproved products.