Tuesday, January 15, 2013

Risk & A Merchant Account

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.

If you have any question about this, please feel free to contact us at  info@tampabaymerchantservices.com or call 727-916-7294