23 Mar What is a Contingent Liability in the Merchant Account World?
One of the most important forms of payment that must be accepted today by business owners is credit and debit cards. Many consumers pay with some form of plastic such as debit or credit cards on a daily basis. Therefore, business owners who do not accept payments of this form can find themselves in serious trouble.
Even though it has almost become a necessity to accept payments such as credit cards, business owners should always make sure that they understand the pros and cons of accepting any form of payment. Regarding payments with credit cards or similar forms of payment, there are basic aspects to this payment type that business owners should recognize. One is that to accept payments such as credit cards, business owners must have merchant accounts. A merchant account is an account provided by a third party company to a business so that the business can accept payments such as credit cards.
With a merchant account, business owners can get the benefit of accepting payments such as credit cards. However, there are several aspects to having and maintaining merchant accounts that business owners must understand to properly manage the accounts. In particular business owners should make sure that they understand all aspects of credit card processing. There are many aspects to credit card processing. One of the areas that is most damaging to business owners is liability.
For business owners there is a certain level of liability that many owners expose themselves to concerning credit card processing, and one specific type of liability is contingent liability. In general terms contingent liability is a situation created when a business owner processes a credit card transaction prior to the date that the cardholder will actually receive the goods or services purchased.
During the time between payment and receipt of the goods or services purchased, the business owner can be held liable for the transaction. Also concurrently this is important to the merchant account provider because the provider is the party that is holding the risk of payment, fraud, and charges related to the transaction in the event that the business owner cannot repay the amount paid by the cardholder.
Business owners should carefully consider this aspect of liability because whenever cardholders change their mind about a purchase and demand their money back either the business owner has to provide a refund or risk a chargeback. Therefore, contingent liability is more than just a phrase viewed in merchant account documents. Contingent liability is real, and many business owners face contingent liability everyday regarding credit card related payments.