What Is An Auto-Renewal Clause In Merchant Agreements?

Auto-renewal clauses are common in the payments industry, so it’s worth understanding how to approach these clauses in merchant agreements when you’re considering your options.

This article explains what an auto-renewal clause is and how to avoid auto-renewals in your merchant processing agreement.

What Is An Auto-Renewal Clause?

An auto-renewal clause, in the context of a merchant account agreement, is written into your contract and allows your merchant services provider to extend your original agreement and continue billing you without requiring your re-approval.

You can cancel auto-renewal merchant agreements, but you must provide ample notice.

How Do Auto-Renewal Clauses Work?

Auto-renewal clauses are designed to simplify the billing process for merchant providers and keep merchants using their services even if they’d rather not. By signing a contract with an auto-renewal clause, you’re on the hook for additional payments once your initial contract term ends — unless you cancel in time (about 90 days before the end of your original contract).

Post-renewal, you may be switched to a month-to-month payment processing agreement, which is generally preferred.

It’s worth mentioning that auto-renewal contracts may not apply to leasing equipment; those tend to lock you in with long-term contracts and heavy fees. We strongly encourage exploring alternatives to leasing your credit card terminal such as purchasing your equipment outright or even renting it.

Auto-Renewal Clauses & Early Termination Fees

If you choose to break your payment processing agreement after it automatically renews, you can face multiple fees for cancellation, including an early termination fee (ETF). ETFs require you to pay anywhere from $100 to $500 to cancel your contract, though $300 is the average.

The worst processing companies have a liquidated damages provision instead of an ETF — meaning they can charge a portion, up to the full amount, of the fees they would have made on the contract if you had let it play out for the full term.

If you’re savvy enough to notice the ETF before signing on the line, you can certainly negotiate to have it removed or adjusted. While you may not get the renewal clause completely removed, you may be able to remove the early termination fee from your agreement— and that’s a win!

How To Get Out Of An Auto-Renewal Contract

To get out of an auto-renewal contract, you’ll need to understand the terms of your contract, contact your provider, and negotiate the end of your contract based on its terms. Unfortunately, in some cases, your only course of action is to pay what you owe and proactively cancel your agreement when it’s up for renewal again.

Here’s a step-by-step breakdown of how to cancel your auto-renewal contract:

1. Understand your situation. If you have already been hit by an auto-renewal clause, you may not be able to get out of paying an ETF or staying with your processor until the renewal term has ended. Your main focus should be canceling any future auto-renewals and negotiating your costs down.
2. Read your contract. Take note of how long your agreement is and pay special attention to the cancellation procedure. You’ll need to understand the auto-renewal cancellation notice period, your original contract term, and the auto-renewal term period.
3. Contact your merchant account provider. The protocol for who you need to reach (and how) as far as terminating your agreement is in your contract, too. Reach out to your merchant account provider to inquire about how to begin the cancellation process.
4. Submit your cancellation request in writing. From your communication with your merchant account provider or through reading your contract, you may find that your cancellation request must be in writing. You may need to print and fill out a form or submit a formal letter to your processor to begin the cancellation process. In most cases, you’ll need to mail out your request.
5. Return your equipment. To ensure your clean exit, you’ll also need to return any “free” equipment in a timely fashion. Consider purchasing the additional tracking, confirmation of delivery, and insurance when sending your equipment back. You can never be too careful. This does not apply to returning leased equipment, you’ll have to go through a separate cancellation process for that.
6. Monitor your bank statements. After canceling, you may still be charged monthly merchant services fees for your merchant account. Monitor your bank statements carefully for the next few months. Beyond being charged for the billing cycle during which you were active, you shouldn’t see any new charges. Call, follow up, send a letter, and repeat until they’ve resolved the issue for you.

How To Avoid Auto-Renewal Clauses In Merchant Agreements

There’s really only one foolproof way to avoid auto-renewal clauses in merchant agreements: read your merchant agreement before signing it. Don’t sign a merchant agreement with an auto-renewal clause if you don’t want to deal with the hassle of remembering to cancel and/or paying ETFs.

If you’ve found a processor that you really like, but find that they have an auto-renewal clause, consider trying to negotiate that clause out before signing the contract. There’s no guarantee that you’ll get the clause removed, but it doesn’t hurt to try.

Another option is to find a processor that offers month-to-month billing; these processors do technically have auto-renewal clauses, but if you miss the window to give notice, you’re only locked in for a month, rather than years.

There are plenty of payment service providers and merchant accounts with month-to-month agreements. Some of these companies offer entirely pay-as-you-go models, meaning the only fees you pay are on the transactions you process.

The Bottom Line On Auto-Renewal Clauses

Auto-renewal clauses are easily defeated by the well-informed. By reading your merchant agreement before signing it, you have an opportunity to negotiate auto-renewal clauses out of your contract or arm yourself with the information to cancel the auto-renewal as needed.

By now, we’ve armed you with enough information to avoid being trapped into multiple-year contracts. Fortunately, many companies provide merchant services without trapping you into a long-term contract.

Our picks for the best credit card processing companies for small businesses include processors that offer month-to-month billing, flexible contracts, equipment purchase options, and more to make processing as painless as possible.