No matter how much money is rolling into your company or how long you have been in business, one thing is certain: Your enterprise will be assessed for its level of risk when you apply for a merchant account. If your company is deemed high-risk, it will affect the processing rate you are offered and may even have an impact on whether you are accepted as a client. That is why you need to understand why you have fallen into this category and why it is vital to select the provider who will give you the best deal in a less-than-optimal situation.
What are the reasons for my high-risk status?
Companies are determined as high-risk for several reasons, including:
High chargeback rates.
If many of your clients request refunds from their bank after purchasing goods or services from you without going to you first, this is a red flag for merchant account providers. It speaks to the buying patterns of your customers and requires the provider to give you more protection against this consumer behavior.
High fraud rates.
Ecommerce businesses that primarily use online payment gateways and process card-not-present transactions through a virtual terminal are particularly vulnerable to this type of criminal behavior and are often considered to be high-risk as a result.
Selling legal but suspicious items.
If you market goods such as e-cigarettes or adult content, you will almost certainly need a high-risk merchant account.
Having headquarters in another country.
Merchant account providers are wary of companies whose inner workings they cannot have access to and inspect, which makes these types of companies risky for them to sponsor.
Proximity to shady businesses.
If your company works with other businesses that are considered to be pyramid schemes or are otherwise suspicious, you become a higher-risk partner.
If your business credit score is very low, standard merchant account providers will be reluctant to work with you because you may be perceived as likely to default.
Being relegated to the ranks of high-risk businesses may not be the place you want to be, but it is inevitable for certain types of companies. That said, you can work to improve your odds of being classified as high-risk by taking action to reduce chargebacks and raise your credit score. Whatever your situation, however, you cannot avoid signing up with a merchant account provider in today’s commercial climate.
High-risk processing fees explained.
It may be hard to swallow, but the fees you will pay as a high-risk business could be higher depending on the degree of risk your business poses. For one thing, you may find that you are required to sign up for a long-term contract with burdensome penalties for exiting early. Recently, however, this trend has been skewing toward month-to-month agreements. Your best bet is to demand this shorter-term option, shopping around until you find a company that gives you one.
Moreover, be aware that you may be charged what is known as a rolling reserve. In order to protect itself against your chargebacks, your high-risk merchant account provider may withhold a percentage of your sales to cover the cost of these refunds to customers. If you don’t have a history of chargebacks, and have a clean processing history, you may not be subjected to this fee.
Of course, you will want to accept all of the major credit card types, including Visa, Mastercard, American Express, and Discover. In order to do so as a high-risk business, your merchant account provider may demand higher processing fees because of the perceived risk your business carries. It should go without saying, but read your contract carefully and thoroughly before signing. If it is so complicated that you don’t understand the terms, either ask questions until you are satisfied or find a different provider. Be on the lookout for any hidden fees buried in the legal language.
Consider instituting a Cash Discount program.
The cash back discount program helps to reduce high processing costs. They are covered by your customers, who remit them to you by paying higher product prices. The catch is that customers who pay with cash can receive a discount, (usually around four percent). Be sure to ask your merchant account provider if their structure is compatible.
Keep your account domestic.
Avoid the temptation to use a merchant account provider from another country. Should difficulties or disputes arise, you will find it much harder to resolve them if your company is not headquartered inside the United States. The good news is that even the highest of high-risk companies can find a domestic solution that is acceptable.
Being deemed high-risk is not the end of the world. Now that you have taken time to understand why your enterprise has been placed in this designation, as well as the potential fees associated with it, you can become a savvy consumer. Finding the most reputable, low-cost high-risk merchant account provider is not an unattainable goal; it is possible, and you can begin your journey today.