Merchant Account Contracts: What to Expect

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Author: Zabel1

A merchant account contract is a great tool for clearly defining all of the options your merchant account provider offers. But it’s also a legally binding document, meaning that once you sign on the dotted line, you are committing yourself to abide by all of the terms set forth in the contract. Before you sign a contract with your merchant account provider, it’s a good idea to do a little research into the clauses and inclusions you can expect to find in your contract, as well as en explanation of what each sections means.

The following guidelines will help you work your way through what can often seem to be a confusing document, and also guide you in determining which merchant account provider is the best choice for your needs.

Length of term. This clause specifies the term or your contract â€" that is, how long you agree to maintain an account with your merchant account provider. When a term is specified, the contract will also establish the penalty fee for canceling a contract early. Not all contracts specify a length of term, but those that do usually offer one of three terms:

Open ended: this term is the most flexible, and specifies that no term length is included, allowing the merchant (you) to end the contract at any time without incurring a penalty.

Specified length: In this arrangement, the merchant is locked into the contract for a time specified in the contract. Most contracts typically specify two or three years for the term, but some may require a commitment of as long as four years. If you decide to terminate your contract prior to the end of the specified term, you could face fees and other penalties as a result.

Auto renew: This is included in some contract with a specified length term, and means that the contract will automatically be renewed unless the merchant indicates that he or she no longer wishes to continue the contract with the account provider. Most contracts offering auto renew also specify the time in which a merchant has to cancel the contract without auto renewal taking effect. If the merchant fails to cancel within that time period, the contract will renew with the same terms; therefore, if your original contract was for four years with auto renew and you fail to cancel within the specified timeframe set forth in your contract, you will automatically be signed up for another four years.

Rates and fees. This is potentially one of the most confusing aspects of the merchant account contract, and one of the most crucial to understand. Rates and fees may be set forth in one specific area of the contract, or they may be specified in different parts of the contract devoted to specific aspects of the account service. Merchant accounts involve a number of fees, all of which can â€" and usually do â€" vary among providers. When reviewing your contract, it’s a god idea to highlight or make note of every fee that’s mentioned to be sure you understand all of the fees involved. Make sure to check with your merchant services provider to ensure you have identified all of the fees associated with the account. Some of the fees that may be associated with your account include: setup fees; monthly fees; annual fees; daily, or closeout, fees; transaction fees; discount rates; equipment fees; and gateway fees, among others. Be sure to ask about penalty fees and when they can be assessed.

Equipment. Most merchant account contracts will also have a clause devoted to the equipment. While many companies allow you to buy your credit card processing equipment, others require you to lease it. Leasing can be a very expensive option over the long run, so be sure to see if your merchant account provider offers a purchase option. Online merchants generally have no equipment fee clauses in their contracts.

Settlement schedules. After your business closes for the day, or at a specified time for businesses that are open 24 hours, credit card transactions are processed by your merchant account provider, and money from those (minus transaction and other associated fees) sales are transferred to your business account. Your contract should specify the time of day when accounts are settled and money is transferred.

Money-back guarantee. Once unheard of in the merchant account provider industry, money-back guarantees have arisen as a result of increased competition. If your contract does not specify a clause offering your money back within a specific period of time if you are not satisfied, ask if the company provides such a guarantee; if they do, be sure it is incorporated into your contract.

Like any contract, the contract between your business and your merchant account provider can seem daunting. Take your time to completely review and evaluate your contract, and ask your merchant account provider to explain anything that is unclear prior to signing. By taking your time to review your contract, you can help avoid headaches and misunderstandings down the road.

Karan Zabel is a freelance writer who writes about North American Bancard