With rare exception most business operators have a good pulse on the financial aspects of their business. They have a budget, review agreements, marketing, etc. Yet more often, I have been asked questions that involve payment processing and it always points to a lack of understanding in regards to it.

All too often, I see issues plaguing business owners where their merchant account was setup but they are having issues with processing limits or even worse – the merchant processor is terminating their account especially in industries where the “risk” element is higher.

Most business owners/operators do not understand what is involved with opening and maintaining a merchant processing “services” account. Every account is underwritten by the processor and signed off by the processor’s clearing bank. The underwriting is a necessity as the merchant account is essentially an open line of credit for a business. It provides the avenue for a merchant to charge cards and receive funds from those charges in as little as 1-2 business days. The receipt of funds could occur prior to goods/services being conveyed and if a merchant doesn’t make good on those and closes, then the processor and ultimately they’re clearing bank is responsible for the chargeback. After all cardholders are guaranteed by their card-issuing bank against the non-receipt of goods/services via the chargeback process!

In addition, business owners are not aware of the liability process involved. The liability expands beyond the goods/service being performed. It also ties directly into the type of goods or service being performed. Every merchant processor has what they term as credit risk tiers. Based on a merchant type and what is being sold – the risk can be deemed low to prohibited with risk tiers in between.

Going back to the start of this article – never assume. What I have seen all too often in the merchant industry is sales representatives of merchant processors not asking the questions to business owners to gain a better perspective on the business at hand. Not understanding a business creates issues on how the merchant account was configured including transaction size, volume limits and possibly how the business transacts – card present compared to not present.

Unfortunately at times, the sales representative understands the business type but reclassifies the merchant category code in a lower risk category. Sounds good on the surface but that move creates issues for the merchant down the road. For example – operator is a Smoke/Vape shop but they are reclassified as Convenience Store. Clearly a very different type of business! Eventually the compliance unit at the processor will review the account and see it is not a convenience store and that is where significant challenges occur for the operator.

A merchant is deemed low or moderate risk if their stated monthly card processing volumes generally fall under $75K. Typically lower volume merchants can be auto-approved which basically means a computer auto-scored and approved it. Account moves onto coding and activation.

So what – I got approved for my merchant account? That is the initial reaction – I am good and can accept cards. All is good until their account has a compliance review done. The review can be as simple as website check, but can dive deeper into business background checks by the risk/compliance officer at the processor. His or her responsibility is to make sure what is stated is actually what the merchant’s business is about. If a merchant is misclassified then it triggers a series of steps in which it can lead the merchant account down the path of being terminated!

How can this be prevented? The first step is making sure your payment professional is asking key questions about your business. If the following are not being asked – then ask them to prevent downstream issues with your merchant account.

• How are you classifying my business on the merchant application? (Definitely read that application carefully – it will indicate the MCC (merchant classification code) including the typed or hand written description of your business.

• How are you setting up my business to accept cards – present at the counter or card not present – via mail, phone or Internet?

• Make sure they are clearly indicating your gross volumes as well as card volumes.
• Make sure they are also indicating the average sale amount as well as what the high value transaction can reach! You do not want issues with larger sale types.

• Do you take a deposit or partial payment up front with completion of services at a later date? If so – make sure it is discussed and noted in the account.

• Who is the clearing bank? Need to verify if they will accept your business type. It does vary out there!

All too often I have seen business owners receive notification from their processor – either their merchant account was suspended effective immediately or in a more lenient path – they are given 60 days to find another processor. Either case it is disruption to the business because now the focus becomes – I need to accept payment cards to stay in business.

Unfortunately, the payments industry is not one that requires a license or degree. It doesn’t take much for one to start selling merchant services to businesses. Step back and think about what is involved in your line of work. To what degree does it take you to run it? Be licensed? How about educational background in it?

It is common business practice for you to ask questions depending on the complexity of the client’s needs. The goal is to have the client pleased with the product/service. When it comes to assessing and recommending a merchant account, it is crucial to understand the prospective client’s business environment, needs and future ambitions. The business discovery scope involves a series of questions and if not asked, then become concerned.

I have always said – a bad question is one never asked! Your business needs depend on it. The last thing you want is an issue with your merchant account as that impact’s your ability to get paid for services being provided. Prevent the assumptions being made of your business. SVBS

Joe Radest HeadshotJoe Radest started his career in card payments in 1998 working for the industry giant First Data. Since FDC, Joe has worked with other notable processors – TSYS, Global Payments and Chase Paymentech. Nearly 3 years ago, Joe branched out on his own; providing complete end to end business process management and secured payment technology solutions, which affords business clients the ability to securely transact payments without having sensitive data touching their environment. In addition to his responsibilities at 1 Step Technologies, he is part of the executive management team at Intrix Technology.  He can be reached by phone at 770-731-0414 or by email at [email protected]