23 Apr What Is A High Risk Merchant Account?
Gold still maybe gold, but credit card processing has almost totally replaced the shiny, yellow medium of exchange. Furthermore, if one is in business as a merchant, then merchant accounts are a way of life that need to be understood before delving into the world of credit card processing.
The article below covers how merchant accounts and high risk merchant accounts affect today’s business owner and credit card processing in general.
Understanding A Merchant Account
Basically, merchant accounts are a kind of line of credit that a credit card processor provider extends to a business person in advance of the merchant collecting payment for providing a product or some service.
Consequently, there runs a risk if the merchant sells something that he/she cannot deliver, partially deliver or is somewhat defective. If the merchants can’t bring satisfaction with a resolution of their own, the merchant account provider, or credit card processor, is now financially responsible and at a loss with things such as charge-backs and other issues.
Low Risk, Medium Risk or High Risk: What’s The Difference?
In the world of credit card processing there are risks, and there are categories of risks. There are also various factors that determine what kind of a risk a merchant is to their provider.
Some factors include how long the merchant has been in business, and if the business is solvent. The industry being serviced, billing methods, the products or services provided and whether they have a clean track record or not are other areas of concern to a merchant account provider.
Typically, restaurants and most retailers are low risk. Medium risks are considered health/beauty products, telecommunication services, school tuition, attorneys and utility payments. High risks include financial products, services, charities, insurance, jewelry and software packages.
What Determines A High Risk Merchant Account
Simply put, high risk merchant accounts are merchants which banks and provider processors prefer not doing business with for a variety of reasons. Nothing is really across board with merchant account processors or providers. What may be a good risk for one processor, may not be a good risk for another.
Generally, factors such as a perceived risk of fraudulent charges, adult entertainment sites, online gambling and even some home-based businesses fall into this category. If a provider sees red flags tossed out by a risk manager, a merchant may end up having funds withheld, be required cash reserve or even have a processing relationship terminated.
If finding oneself in a high risk category, some tips of advice to lower the risk would be: bill monthly and not quarterly, actually own the inventory and have cash in the bank that indicates a cash flow.