How To Read, Understand, & Successfully Negotiate A Merchant Agreement For Your Small Business
Here at Merchant Maverick, we’re constantly advising you to read your contract before you sign up with a merchant account provider. Why? Because this is the most important step in the process of negotiating an agreement with a provider. No matter how much time you’ve spent obtaining quotes from multiple providers, researching each company, and negotiating with an agent for the company you’ve chosen, none of it will matter if the legally binding documents that define every aspect of your relationship with your merchant account provider don’t match up with what you were promised by the company’s sales agent. Failing to read contract documents and understand what you’re really agreeing to can be an extremely frustrating and expensive mistake. In fact, a poor understanding of the terms of a processing agreement is the most common cause of issues that arise between merchants and their providers.
Reading your contract safeguards you in three major ways:
- It protects you from unscrupulous sales agents who fail to disclose important contract terms, or even lie about the costs or obligations contained in a contract.
- It gives you a clear understanding of almost every possible cost that you will or could be responsible for as long as you maintain your account.
- Most importantly, it gives you your last and best chance to call the whole thing off and back out of the deal before you’ve signed up if you find that the actual terms of your contract are simply unacceptable to you.
In this article, we’ll explain what merchant agreements are, how they’re structured, and how to identify and interpret the most important clauses you’ll find in them. We’ll show you examples of common verbiage that describe the length of your contract, how to cancel your agreement, and any penalties that might apply for doing so. We’ll identify common red flags that indicate that your sales agent isn’t being honest with you, and give you some strategies for dealing with this all-too-common problem. Finally, we’ll show you how to get out of a bad deal if you’ve already signed up for an account, and things just aren’t working out between you and your provider.
Table of Contents
- What Is A Merchant Agreement?
- The Most Important Parts Of A Merchant Agreement (For A Merchant)
- Standard Credit Card Processing Fees: What To Look For & Where To Find Them In Your Contract
- Seven Red Flags That A Sales Rep Is Pressuring You Into A Merchant Agreement Scam
- What To Do When Your Credit Card Processing Agreement Has Failed
- Your Merchant Agreement Is A Contract, Not A Death Sentence
What Is A Merchant Agreement?
A merchant agreement is simply a document (or, more likely, a collection of documents) that establishes a contract between you, the merchant, and your merchant services provider. A contract, in turn, is an agreement between two parties that establishes the expectations and rules of behavior governing the relationship between them. That’s actually the simple definition – contracts have been around for hundreds of years and there is an entire branch of the law devoted to them. Despite what you may have heard, verbal contracts can be legally valid, although they’re extremely difficult to enforce if a dispute arises between the parties. Today, most contracts are written, and they govern practically every aspect of modern life. From obvious examples such as automobile loans to those End User License Agreements (EULAs) that pop up whenever you install a new app on your phone, contracts are everywhere.
Unfortunately, we’ve become so inundated with contracts that we rarely take the time to sit down and read them. Now, you might be able to get away with this when installing the latest trendy social media app (assuming you don’t mind letting the company sell your personal data to advertisers, of course), but it’s a really, really bad idea when it comes to merchant services. Why? Because the sales agents that are tasked with selling merchant accounts have learned over the years that it’s much easier to convince you to sign up for an account if they conveniently forget to mention or explain certain terms — terms you might not be comfortable with if they were brought to your attention. These terms include (among other things) early termination fees that penalize you for closing your account, liquidated damages clauses that make it even more expensive to get out of your contract, automatic renewal clauses that keep you obligated to your provider indefinitely, and the fact that your equipment lease (if you have one) is completely and utterly noncancelable. Plus, there’s a host of “hidden” fees that your sales agent might have neglected to tell you about but that are spelled out – often in very, very fine print – somewhere in your contract.
Before we dive into the nuts and bolts of understanding your contract, let’s begin by explaining that every merchant services provider will have a contract that governs your relationship with them. This includes popular payment service providers (PSPs) such as Square (see our review). So, if you see a provider claiming that they have “no contracts” on their website, be aware that what they really mean is that you won’t have a long-term contract that commits you to keeping your account open for years at a time.
Depending on which provider you sign up with, your “contract” may actually include agreements with more than one party. Obviously, there will be an agreement between you and your provider. However, you might also have an agreement that applies to the relationship between you and the backend processor that will be processing your transactions. If you make the mistake of signing up for an equipment lease, there will usually be a separate (and even more draconian) agreement that only covers your leased processing equipment. The leasing of credit card machines has earned such a poor reputation in the business community that most large processors have spun off subsidiaries (wholly owned by the main company, of course) to handle these leases. Lastly, your contract might also include separate agreements with third-party service providers, such as payment gateway providers, etc.
Can You Negotiate A Merchant Services Agreement?
If you’ve read this far and are starting to wonder whether it’s really worth it to open a merchant account at all, we have some good news. Unlike many other vendors or service providers you deal with in your everyday life, most merchant services providers will allow you some leeway to negotiate the exact terms of your contract. In other words, you won’t necessarily have to accept the first offer you receive from a prospective provider. In fact, many providers assume that you will try to negotiate a better deal, and set their prices higher than what they’re really willing to accept. In this case, failing to negotiate for lower rates and more favorable terms can be an expensive mistake.
The merchant agreement issue is definitely complex and is pretty much dictated by the acquiring banks of the MSP/ISO. For our part, we have to go along with the boilerplate terms set down by either Wells Fargo or Synovus Bank, but we do have authority to delete certain clauses – like termination fees, etc. It’s kind of like clicking on the terms of agreement for an iPhone update – if you or I actually read (and understood it), we would probably gasp at what is being agreed upon, but of course, you could not continue to use their services even if you pushed back on something.
That said, probably the most important thing is for an agreement to explicitly offer the ability for the merchant to cancel at any time without penalty. Even then, the processor has the right to keep an account “open” for a period of time in order to process any chargebacks or malicious activity on the account.
Now, before you start salivating at the prospect of customizing your entire contract to your liking, you need to be aware that your ability to change the terms of your contract is quite limited. In fact, roughly 90% of the terms of your contract consist of standard boilerplate terminology that will be the same for every merchant, regardless of which provider you’re using. For example, you can’t change the rules set forth by the credit card associations (e.g., Visa or Mastercard) that are restated in your contract. Likewise, you’re extremely unlikely to get a waiver on arbitration clauses or clauses that specify a choice of jurisdiction for disputes. However, many of the most critical aspects of your contract are, in fact, negotiable. These include the following items:
- Early Termination Fee (ETF) Or Liquidated Damages Clauses: These clauses are the most common terms in a merchant services contract to be waived through negotiation. No one wants to be hit with a penalty for closing their account, and providers are often eager enough to get your business that they’ll waive the ETF as an inducement for you to sign up with them. A word of warning is in order, though. Never rely on a verbal waiver promised to you by your sales agent. Always get a written waiver, and keep a copy of it for your records. We’ve heard far too many complaints from merchants who were promised a waiver, but then had the ETF automatically taken out of their bank accounts later on because the sales agent never passed the waiver information along to anyone else at the company.
- Contract Length: Although they’re falling out of favor, the standard merchant account agreement today still usually requires an initial commitment of three years. However, you can often have this term waived if you ask for a month-to-month arrangement instead. Be aware that having a waiver to the early termination fee does not mean that your three-year term is automatically waived also. These two terms are often contained in separate clauses to your contract, and you’ll want written waivers to both of them to protect against being automatically charged recurring fees after you’ve closed your account early.
- Processing Rate Plan: Although we consider tiered pricing to be the worst possible processing rate plan for merchants, it’s still the most commonly used type of pricing in the industry. Why? Because most merchants don’t know the difference between tiered pricing and interchange-plus pricing, which is both more transparent and more affordable. Many merchant services providers will try to set you up with tiered pricing, even though they also offer interchange-plus plans. Don’t fall for it! Always ask for an interchange-plus pricing quote, and be prepared to find a different provider if it isn’t offered to you. Note that if your provider of choice offers flat-rate or subscription-based pricing, or uses a standardized interchange-plus rate based on your monthly processing volume, you might not be able to negotiate a custom pricing quote unless your processing volume is extremely high.
- Some Fees: Don’t get too excited here. Merchant account providers charge a host of recurring and incidental fees, all of which should be disclosed somewhere in your contract. While some of these fees can be reduced or eliminated through negotiation, many others cannot. For example, you can always count on having to pay chargeback fees, monthly account fees (although you can sometimes lower the amount), and any fees that your provider has to pass on to issuing banks or credit card associations (e.g., Visa FANF fees). Fees that can be waived or reduced include application fees, account setup fees, statement fees, and your monthly minimum.
Your ability to change the terms of your merchant services agreement will depend primarily on both the size of your business and your negotiating skills. Providers make more money and are exposed to less risk by working with larger businesses that have established processing histories, and so they’re more likely to adjust their offer to get one to sign up. Small or newly-established businesses, on the other hand, don’t have these advantages and often have to take what they can get. However, you can still improve your negotiating skills and use them to your advantage, regardless of the size of your business. Check out our article on negotiating your credit card processing deal for some helpful tips.
What About Square & Other Payment Service Providers (PSPs)? Do They Have A Contract?
Square (see our review) and other PSPs are very popular with small business owners because they allow you to set up an account through their website without having to submit a small mountain of information about your business and wait for an underwriting department to go through it all before approving (or denying) your account. Approval is quick and, in most cases, nearly automatic.
But do they have a contract? As we’ve emphasized above, there’s always a contract. In this case, Square has conveniently posted their standard Terms of Service right on their website. Unlike most merchant services agreements, it’s relatively short and written in plain English. We highly encourage you to read it before you decide to sign up with Square. The only downside to this approach is that you can’t negotiate the terms of a one-size-fits-all contract like this. However, since Square already offers month-to-month billing, no monthly fees, and fully disclosed flat-rate pricing, there really isn’t much to negotiate anyway.
The Most Important Parts Of A Merchant Agreement (For A Merchant)
As we’ve mentioned above, most of the content in a merchant agreement will be nearly the same from one provider to the next. However, this won’t make the job of deciphering your contract any easier. No two merchant agreements are identical. Every provider has their own way of organizing their contract documents, and some providers even have multiple versions of their contracts, depending on which backend processor is underwriting your account.
Merchant agreements can run anywhere from as few as four pages to over 60 pages, depending on how they’re organized and how many additional agreements are included with them. At a minimum, you can expect your agreement to include two distinct parts: a Merchant Application and a set of Terms and Conditions. You might also have one or more Third-Party Agreements as well, either incorporated into the main document or published separately. Here’s a breakdown of what to look for in each part of your agreement:
Before you can open a credit card processing account, you’ll need to fill out a Merchant Application. This document, often only one or two pages in length, collects information about you and your business. Besides obvious facts such as what industry you’re in and whether you operate out of a retail location or sell online, you’ll also have to provide reasonable estimates for what percentage of your sales are in cash, by credit or debit card, or via another payment method. You might also need to provide enough financial information for the provider to run a check on your personal credit.
One word of caution is in order here: providers often ask for information about your business bank account, including account and routing numbers. While they legitimately need this information to deposit funds from your credit card sales into your account, they can also take money out as well. Unscrupulous providers can sign you up for a merchant account without your knowledge and begin extracting any number of fees immediately, even if you don’t process any credit card sales. We recommend that you wait to provide this information until you’ve read your contract thoroughly and are certain that you want to open an account with your chosen provider.
Merchant applications also provide a space to lay out all the information that will be unique to your account in one location. This will include all applicable processing rates and recurring fees that vary from one merchant to the next. Incidental fees, which are typically the same for everyone, will usually be found somewhere in the Terms and Conditions portion of your contract. Here’s a sample Merchant Application from CardConnect to give you an idea of what to expect.
Merchant applications aren’t as chock full of legalese as the Terms and Conditions section of your contract, but it’s still critical to review them very carefully. One particularly important thing to look for is the presence of mid-qualified and non-qualified processing rates. This is a sure sign that your sales agent has signed you up for an expensive tiered pricing rate plan. Sales agents have a bad habit of only verbally disclosing the qualified rate for your plan, without mentioning the mid-qualified or non-qualified rates. These rates are much higher, and today most of your credit card transactions will fall into one of these two types of rates instead of the lower qualified rates.
Terms & Conditions
Just as the Merchant Application contains all the information that applies specifically to your account, the Terms and Conditions section of your contract includes all the stuff that applies equally to every merchant account maintained by the provider. And it’s a lot of stuff. Terms and Conditions sections invariably run for many pages and include a tremendous number of rules and policies that govern how you use your account, all spelled out in exacting legalese that can be painfully difficult to read. Some providers have started to call this section a Program Guide, perhaps in an effort to make it sound a little less daunting. Most of the information contained here is industry-standard, with very little real variation from one provider to another. However, there are also some really important policies buried in here that can have a serious impact on your relationship with your provider. The most important things to look for in the Terms and Conditions are going to be clauses that define the length of your contract term, the automatic renewal clause (which will usually be included), early termination policies, and instructions for properly closing your account. You should also familiarize yourself with clauses that require you to submit to mandatory arbitration or specify a choice of jurisdiction in the event that you find yourself in a legal dispute with your provider.
Contract Length Clauses
How long is your contract? Your sales agent should answer this question for you in detail before you sign up, but it’s not unusual for them to conveniently “forget” to do so. The typical, industry-standard merchant agreement has an initial term of three years, or 36 months to align with your account’s monthly billing cycle. While a three-year initial term is the most common, we’ve seen contracts where this term is as short as one year, and occasionally as long as four (or even five) years. Automatic renewal clauses extend the term of your contract, typically for an additional twelve months at a time. Again, there’s some variation among providers, with subsequent terms ranging from six months to two years at a time. Note that Canadian law limits contract extensions to no more than six months at a time.
Long-term contracts have always been unpopular with merchants, as they make it very difficult to get out of your contract if you want to switch providers. The trend within the industry now favors month-to-month billing, which is much more flexible. Be aware, however, that you are still under a commitment even with month-to-month contracts. Look for verbiage in your Terms and Conditions that specifies an initial term of 30 days, with automatic renewal periods of an additional 30 days at a time thereafter. With no early termination fee imposed, month-to-month contracts allow you the freedom to close your account at practically any time without penalty. At most, you might have to pay recurring fees for one additional billing cycle.
Early Termination Policies
One of the worst aspects of merchant agreements is when providers impose an expensive penalty for closing your account before the end of the current term. The most common practice is to charge a fixed early termination fee (usually between $295 and $495), regardless of how much time is remaining on your current contract term. Some providers will offer proration based on the number of years left on your contract, which lowers (but doesn’t eliminate) the penalty if you stay with them for over a year or two. In some cases, providers will use a liquidated damages clause instead of a fixed fee. Liquidated damages are based on a combination of your average monthly processing volume and the length of time remaining on your contract. A liquidated damages clause can potentially be very expensive, particularly if you have a high monthly processing volume and close your account within the first few months of opening it.
When you read the early termination provisions of your contract, one aspect that will probably upset you the most is the dramatically unequal way in which early termination applies between you and your provider. While you, the merchant, are contractually obligated to keep your account open for years at a time and pay a host of recurring fees, whether you use the account or not, your provider can close your account unilaterally at any time for practically any reason. While they’re highly unlikely to do so as long as they’re making money off of your business, a sudden closure could leave you without the ability to accept credit or debit cards until you can line up a new provider.
Account Closure Instructions
While lengthy contract terms and automatic renewal clauses are designed to keep you on the hook indefinitely, it is possible to close your account without penalty. Every merchant agreement contains specific instructions for closing your account. Providers don’t make it easy, but if you follow the directions in your contract very carefully, you can terminate your contract at the end of the current term without being charged an early termination fee or liquidated damages. Almost all providers require written notice of your intent not to renew your contract, provided within a specified number of days before the end of your current term. Unfortunately, providers often make it difficult to find out the exact date of your contract renewal, so you’ll want to pin this down and send in your notice well in advance of the minimum required period. Providers typically require 30 days’ notice, although we’ve seen some contracts where the required notice period was as long as 90 days prior to termination. You should also beware of providers that require that the notice be submitted on a special written form, which they jealously guard and will only provide to you upon request.
Here’s an extract from an old Sage Payment Solutions (now Paya) contract that includes examples of all the clauses and terms we’ve discussed above:
Clauses Affecting Legal Disputes
Although they don’t happen nearly as often as you might expect, legal disputes between merchants and their providers are always a possibility, and providers will attempt to protect themselves by including language in their contracts that makes it more difficult for you to pursue this kind of remedy. Usually located near the very end of your Terms and Conditions, you’ll almost always find a few provisions that cover any type of legal action you might wish to pursue.
Mandatory arbitration clauses are the most common kind of limitation you’ll find, and they’re a standard feature of almost all merchant services agreements today. These clauses simply require you to submit to mandatory arbitration in lieu of filing a lawsuit. In most cases, courts will send you to arbitration prior to hearing your case anyway, so these clauses don’t have much impact on your ability to pursue a legal remedy.
Choice of jurisdiction clauses are also included in every merchant services contract today. In almost all cases, the provider will limit jurisdiction to courts in the state where their headquarters is located. While this doesn’t prevent you from pursuing legal action against them, it can throw up a significant roadblock if you don’t live in the same state. You’ll be responsible for any costs you incur traveling to court appearances, depositions, etc. While we don’t recommend that you choose a provider based solely on geographic proximity to your place of business, you should be aware of the impact this kind of contractual limitation can have if you end up trying to sue your provider.
If your merchant account includes a product or service provided by a third party, you’ll have a separate agreement with that party included as part of your contract documents. Payment gateways and equipment leases (which you should avoid) are the most common examples of these additional agreements.
Third-party agreements may be separate documents, or they may be included within the body of your Terms and Conditions. For example, if you need a payment gateway and your provider uses Authorize.Net (see our review) exclusively, you’ll have an agreement that applies between you and Authorize.Net.
With equipment leases, many providers will use a separate company to provide the equipment and administer the lease. In most cases, this “company” is actually a wholly-owned subsidiary of the provider, often located at the same physical address. Be aware that the length of your equipment lease is separate from the initial term of your merchant account agreement. In fact, it’s often longer – keeping you on the hook for monthly lease payments even if you close your merchant account at the end of the initial term.
Standard Credit Card Processing Fees: What To Look For & Where To Find Them In Your Contract
As we’ve discussed above, your merchant agreement will define the type of processing rate plan you have and identify the rates that apply to your account. Rate plans can be flat-rate, tiered, interchange-plus, or subscription-based. Unfortunately, most providers don’t spell out exactly which type of rate plan you’re on in their contracts (particularly if you’re on an expensive tiered plan). You will almost always find this information in the Merchant Application section of your agreement. Make sure that your agent fills this section of the agreement out completely before you sign anything. Processing rate information can get complex very quickly, with separate rates for credit cards, debit cards, ACH payments, American Express cards, etc. You’ll want to know which rates apply to your account and the circumstances under which each rate will apply to a given transaction. For help in identifying your processing rate plan type, see our article on identifying your pricing model on your processing statement.
Be aware that interchange fees will not be disclosed on your merchant agreement, even if you’re on an interchange-plus pricing plan. These fees are set by Visa, Mastercard, and other card brands, and are usually updated twice a year. See our article on interchange fees for more information.
Your Merchant Services Agreement Could Contain Hidden Fees
In addition to processing rates, your merchant account will be subject to a bewildering number of recurring and incidental fees. Rest assured that these fees are all spelled out somewhere in your contract. Finding them, however, can be a challenge. Most fee information will be filled out in the Merchant Application section of your contract documents. The Terms and Conditions section, on the other hand, rarely discloses fee information unless that amount charged is identical for all merchants using that provider. Chargeback fees, for example, are often disclosed and discussed here. Be aware that some providers will include clauses in their agreements that allow them to change or modify other fees not disclosed in the contract, at their discretion. For an in-depth discussion on merchant account fees, see our post on credit card processing rates and fees.
Seven Red Flags That A Sales Rep Is Pressuring You Into A Merchant Agreement Scam
Nowhere is the credit card processing industry sleazier and more dishonest than in the sales practices it employs to sign merchants up for accounts. Many providers lower their costs by relying on independent sales agents, who often work on a commission-only basis, and need to sell accounts to put food on the table. While there certainly are honest, experienced people working as independent sales agents, the truth is that you’re more likely to encounter an agent who’s more than willing to take some ethical shortcuts in order to close the deal and sign you up for an account. Here’s a rundown of the most important “red flags” that can help you to identify and steer clear of a dishonest agent who’s basically scamming you:
- The agent fails to disclose that the contract contains an early termination fee. This is the most common complaint from merchants who’ve had a bad sales experience. Agents know that you don’t want to have to pay an ETF if you later decide to close your account, so they simply “forget” to mention it unless you directly ask them about it. In extreme cases, agents will outright lie, claiming that the contract doesn’t include an ETF, when it’s clearly spelled out in the Terms and Conditions.
- The agent offers a verbal waiver of the early termination fee, but doesn’t provide it in writing. Never rely on the verbal assurances of a sales agent! Agents are quick to promise you a waiver just to get you to sign up, but unless you have written proof to back it up, you could still be liable for paying the ETF down the road. In fact, some providers explicitly state that verbal agreements are not part of your contract. While this provision is meant to protect them from false claims by merchants, it also gives sales agents complete freedom to lie to you.
- The agent fails to disclose the terms of the leasing contract. Few, if any, merchants would ever agree to a lease if they understood the noncancelable nature of the leasing contract and the true cost of the lease relative to the value of the equipment provided. Our best advice is never to lease your equipment. If you find yourself short on cash and tempted by the apparently low monthly lease payments, read your leasing contract before signing up. That should be sufficient to change your mind about entering into a lease.
- The agent pressures you to sign the agreement before you’ve had an opportunity to review it. This is a very common tactic in the processing industry. Agents know that you might back out of the deal or attempt to renegotiate the terms if you actually read the fine print, so they apply tremendous pressure to get you to sign up right away. The latest trick we’ve heard about is agents physically coming into retail locations with iPads and other tablets to collect digital signatures from merchants without giving them an opportunity to review the documents. Don’t fall for it!
- The agent pressures you to sign the Merchant Application without telling you that doing so can actually bind you to a contract. Because the Merchant Application is used to collect information about your business, it’s easy to fool merchants into thinking that it’s just an application. It’s not. The Terms and Conditions section of the contract does not require a signature, so an agent can submit your signed Application to underwriting without you ever seeing the Terms and Conditions. If it’s approved (and it usually will be), you’re now stuck in a long-term contract.
- The agent fails to provide a physical or digital copy of contract documents. This is becoming more of a problem as providers migrate toward using web-based signup processes and digital signatures. Often, an agent will promise to send a merchant a physical copy after the account is approved, but then fail to do so. Do not let this happen to you! As a minimum, you should keep digital copies of all your contract documents. If the agent has written anything onto a paper copy of the contract (such as crossing out the early termination clause), keep a physical copy as well.
- The agent forges your signature onto your contract documents and submits them to underwriting without your knowledge or consent. Yes, this actually happens – even though it’s a violation of criminal law and the agent could end up with a felony conviction and a prison sentence if he or she gets caught. Unfortunately, these incidents are rarely reported to the proper authorities for investigation. What usually happens is that the agent gets fired, and the provider quickly releases the merchant from their contract.
What To Do When Your Credit Card Processing Agreement Has Failed
Being stuck in a long-term contract might not seem so bad when your business is humming along, but things can go south very quickly for a number of reasons. Maybe your processor has raised your rates, or you’ve had a bad experience with customer service. Maybe you’ve found a better provider with lower rates and no long-term contracts. Maybe you just need to close your account because you’re retiring, shutting down your business, or selling it. Whatever the reason, early termination fees and automatic renewal clauses can make it difficult to exit your agreement without paying a substantial penalty. Unfortunately, providers don’t like losing customers and are rarely sympathetic to whatever legitimate reasons you might have for leaving.
Unless it’s an emergency situation where you need to get out of your contract immediately, we recommend that you wait until the end of your current contract term and close your account by following the specific instructions contained in your contract. The aim here is to give your provider sufficient notice that you won’t be renewing your contract, so it doesn’t auto-renew, and you won’t be assessed an early termination fee. Providers are notorious for making this process as difficult as possible, but as long as you get the ball rolling ahead of time, you should be able to submit the proper documentation and provide the required notice to terminate your contract.
If you’re only a few months into a long-term contract and it’s obvious that things just aren’t working out, closing your account without penalty will be more difficult. Providers are usually more willing to work with you in situations where the business is closing or changing hands, but if you’re just trying to switch to a competitor, they’re not going to help you out. However, the processing industry is so competitive that some providers will offer to pay your early termination fee for you if you switch to them. Just be aware that if you do this, you’re almost certainly going to be trading one long-term contract for another. If you’re going to switch providers, we recommend that you switch to a company that will offer you true month-to-month billing with no long-term commitment at all.
Finally, if you’ve had a really bad experience with your provider and they won’t let you out of your contract, you should consider filing a complaint against them with the BBB. Despite all the shady practices commonly found in the processing industry, merchant services providers are just as sensitive about their reputations with the public as any other business. We’ve seen plenty of situations where an aggrieved merchant went public with a BBB complaint, and the provider quickly released them from their contract and refunded their early termination fee.
Your Merchant Agreement Is A Contract, Not A Death Sentence
If you’ve read this far, you might be starting to wonder if accepting credit cards and having a merchant account is even worth the effort. For most businesses, the answer is clearly yes. With customers increasingly relying on credit and debit cards for nearly all of their purchases, the additional sales that come with having a merchant account will usually more than make up for the hassle and expense of setting one up. The real trick, of course, is to identify and sign up with the provider that can offer you the best combination of low fees, reasonable contract terms, and high-quality customer service.
Unfortunately, the processing industry is simply not the sort of place where you can expect everyone to be honest and treat you fairly. People in this business can and will take advantage of you – if you let them. Reading your contract before you sign up is your last line of defense against being stuck in a bad deal. With that in mind, here are some practical tips for actually reading your contract without missing anything important:
- Pick a time when you’re rested and alert. You should plan to devote at least an hour to this chore, although it might take as many as 3-4 hours if you’ve never done it before.
- A cup of coffee or tea can help you to maintain your focus while wading through all the legalese. Save any celebratory adult beverages for after you’re finished.
- Highlight key sections of your contract and take notes. This advice especially applies to the termination clauses of your contract. If needed, contact your sales agent for clarification of any provisions that you don’t understand.
- Obtain a digital version of your contract (usually in PDF format), if at all possible. You can magnify the fine print to a size that’s actually readable and use the search function to find important terms quickly.
- Keep a physical copy of your contract if one is provided, especially if it includes changes made by your agent (such a waiver of the early termination fee). This action can protect you in case a dispute arises later regarding the terms of your contract.
- First-time business owners should read every word of their contract and make sure they understand it fully. More experienced merchants can carefully skim through the boilerplate provisions and focus on the important clauses that we’ve discussed above.
We highly recommend that you read your contract thoroughly regardless of which merchant services provider you’re about to sign up with. Even with the most reputable providers, you’ll want to have a clear understanding of the obligations you’re undertaking when you sign your contract. At the same time, it’s important to understand that most of the problems we’ve discussed above will not be an issue if you sign up with a top-notch provider. The best providers in the industry fully disclose their pricing and contract terms on their websites, rather than burying this information in the fine print of a contract. They also employ in-house sales teams who aren’t under pressure to earn a commission.
Finally, our favorite providers all offer true month-to-month billing with no long-term contracts and no early termination fees. Check out our Merchant Account Comparison Chart for a side-by-side comparison of the best providers in the industry!