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.