What risk? A customer
gives me a credit card, I get an authorization, a day or two later I receive
funds, so what is the problem or risk?
An
authorization is letting you know that funds are available on the card at that
time in point. An authorization does not confirm the cardholder’s card or limit
the cardholder from disputing at a future date. If you received more than one
decline seek another form of payment. A decline authorization is the issuing
banking letting you know there is a problem.
There more to it than this. A merchant account is like a line of credit with the
processing company and unsecured lender. There is a chance that a card
holder can dispute a transaction up to six months from service rendered or
delivery date. If the merchant does not have funds in the bank
account, then the provider will be the one to take the loss. Also
consider in some situations, a merchant collects payments in advance of
providing the product or service as well as providing some sort of quality
assurance, i.e. will be delivered, can be returned, satisfaction guarantee,
therefore the risk is ultimately borne by the provider. This is like a
line of credit. Keep in mind margins are so low for a provider,
risk is screened and monitored very closely
Risk Variables & Key Areas
Company longevity & financial strength
Industry and how cards are processed
Billing method and accepting payments in advance
Why is it important for
you to understand risk?
Since there are many companies in the
merchant provider industry will manage the risk on the back end or after the
account is approved. Then the business
might have an unpleasant surprise of having funds held until the merchant
service provider is satisfied with the business meeting certain
requirements. In some cases the funds
might be held in reserve for up to 6 months.
If you are unhappy, too bad, they have you under contact. It is important to have this vetting
beforehand.
If a merchant provider does not properly
assess risk during underwriting and down the road a risk manager flags the
merchant, they may withhold funds, require a reserve (where they hold a certain
amount of money in reserve to offset the risk) or terminate the processing
relationship. So be cautious when selecting a partner. If you are unhappy, too
bad, they have you under contact. It is
important to have this vetting beforehand.
