28 May Reading the Terms and Conditions of Your Merchant Agreement
Consumers are using plastic rather than cash. In order to compete, small businesses must accept credit cards. There are hundreds of companies vying for a company’s processing business, so business owners need to do their homework before signing up with a processor.
One of the most important parts of the Merchant Agreement to read is the Terms and Conditions, or T&C, portion of the contract. The T&C explains the merchant’s responsibility in using the service as well as the responsibilities of each party in the credit card processing relationship. Not unlike the T&C that is spelled out on websites which users are required to check that they’ve read before use, these documents are written in legalese, which makes it difficult for many business owners to really understand. And just like app users, many merchants just skip over the T&C information and sign the contract.
Even a cursory review of the T&C is better than blindly signing it. Merchants should look for anything that sounds as if it will cost them additional money, like the terms “downgrades”, “cancellation penalties” or “volume commitments.”
When it comes to credit card processing, most merchants want to ensure they are getting the best pricing for the volume they process. Sales people are not always forthcoming about every fee that can be assessed on merchant accounts because they are trying to sell their product, rather than watch out for their customer.
Merchants must understand that the interchange rate charged by Visa, MasterCard, Amex or other carriers, depends on the type of card used. A typical Visa with no rewards will have a lower interchange rate than one that provides significant cash back awards. Merchants should always read the interchange table to understand how these rates fluctuate between cards.
Term and Cancellation Penalties
The credit card processing agreement is a contract between the business owner and the processing company, and like most contracts, it has a term written into it. Most processors have an early cancellation fee, which is based on the remaining time in the contract. The earlier the contract is cancelled, the higher the fee. Businesses who are just entering the credit card business should make a concerted effort to have the fee stated clearly, particularly if the business is new.
Many processors expect their customers to process a minimum dollar amount each month. Some processors will compare businesses and expect all businesses of that size or industry to produce that minimum dollar amount.
Most credit card processors are forthright with their merchants and want to keep their processing customers happy. Business owners who have merchant accounts should read the fine print and do their due diligence to ensure they aren’t surprised when they get their bill.