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Merchant Account Soft Limits – Explained

Posted by Alex Neir on Tue, June 21, 2011 @ 02:49 PM
Merchant Account Soft Limits

Merchant Account Soft Limits – Explained

When a business applies for a merchant account the application will ask for three financial figures that represent the credit card processing amounts requested by the business. These three figures are:

  • The average ticket or sale amount
  • The high ticket or sale amount
  • Monthly credit card sales volume

These figures help the credit card processor compile a risk profile for the business and ultimately drives weather the business is approved or not. A risk profile is considered based on the fact that the funds received from the end customer are deposited directly into the business bank account. The credit card processor assumes that the products or services purchased will be delivered. If they are not and the business disappears, the processor is responsible for refunding the customers money.

The sales figures requested on the merchant account application are weighted against the businesses financial strength to determine acceptance. If the business and owners are financially capable of supporting the requested amounts the application is approved.

Once approved these figures represent the soft limits for the account. The term “soft limit” is used because the account will allow these limits to be exceeded, however, the credit card processor reserves the right to hold funds that exceed the soft limits amounts on the account. Therefore it is important to understand your account limits and to stay within them.

What if you have to exceed your soft limits?

The best thing to do is be proactive. If you know you are going to exceed your high ticket amount or your monthly volume, call your processor ahead of time and explain the situation. By being proactive you are demonstrating good management of the account and most processors will work with you and will not hold your funds. 

Tags: Merchant Account Soft Limit, Why Is A Merchant Account A Line Of Credit, Risky Credit Card Transactions

A $50,000 transaction, should you run it?

Posted by Alex Neir on Tue, November 09, 2010 @ 12:57 PM
Risky Credit Card Transaction

When you signed up for your merchant account you specified your average transaction amount, your high transaction amount and your estimated monthly sales volume. These values were used during the underwriting phase of your account acceptance and represent the soft limits for your account. Most processors won’t have a problem if you exceed any one of these by a nominal amount. On the other hand if you exceed any one of them by an excessive amount you are raising a red flag with your processor.

Now should you run a $50,000 transaction with your merchant account? The question would be – did you specify a high ticket amount of $50,000 or more when you completed your application? Typically when a new merchant account is set up the business owner will estimate what they think the volume, average ticket and high ticket will be. It is always a good idea to exaggerate the values to approx double, ever triple the expected amount. This is a good practice to allow for expected growth of the business.

With regard to our $50,000 transaction, if your normal transaction size is $30,000 and your high ticket amount is $45,000 then you will likely have little problem with an amount slightly above at $50,000. Now if your average transaction is $35 and you high ticket amount is $500, then running a $50,000 transaction is a very bad idea. This transaction represents a great deal of risk for a business that is averaging $35 per transaction, both for the business and the processor.

Why is that a risk?

The risk of the transaction lies in the likelihood of fraud or a chargeback. This risk is substantial to your processor because if you commit fraud or have a large number of chargebacks with the inability to pay for them then the processor is stuck with the bill. Situations like these are handled differently with each processor. Some have automated systems that will flag a transaction if its outside the specified boundaries. Others have actual humans that review each account. Some processors allow for the business to exceed their limits temporarily while others will permanently shut down the account if the limits are exceeded. Regardless of the rules with your specific processor you are pretty much guaranteed to have your batch reviewed if it exceeded your specified monthly volume limit.

Most credit card processor’s risk departments have very specific operational guidelines they adhere to.  It is very important to know that they have complete control over the money that flows though the account they have underwritten. That being said, if your account breaks the rules the consequences can be severe. Some will shut down your account and never release any funds that are in excess of the guidelines approved for your account. Some will hold the funds for extended periods of time. Others won’t tell you the funds have been held and will wait for you to call in. Once your account or funds are transferred to the risk department within your processor it can be a very long, frustrating and cumbersome process to correct.

What should you do if you absolutely have to run a larger transaction?

I always suggest you be proactive. Call you processor and tell them what you would like to do. They may approve the transaction on the spot. They may want a signed invoice authorizing the charge from you customer. They may want to see recent bank account balances for the business. The point is that if you call ahead and seek approval first you are likely to avoid a great deal of headache later.

To sum it up:

Always try to get approved for the maximum amount possible when opening your account and secondly always ask before you attempt to exceed the approved limits on your account.

Tags: Merchant Account, Merchant Account Fraud, Merchant Account Soft Limit, Risky Credit Card Transactions