Merchant Account Risk
Monday, March 9th, 2009Any business owner can tell you that there is a certain percentage of money lost due to refunds for products or services, returned checks, and charge backs from credit card transactions. When going online, there are still risks, but these are a whole new set. Many merchants elect to use a merchant account to process credit card transactions. This not only involves having the merchant account provider to gather the sales information, but the provider will also obtain authorization for credit cards, collect funds and transfer them to the business owner.
Using a merchant processing company does involve some merchant account risk. As with all things financial, someone will lose money if something goes wrong. Finding a reputable provider with good accounting practices can decrease the chances of losing money, or else you might find yourself in the cold.
*** For more information on credit card processing, CLICK HERE ***!
It is important to keep accurate records yourself in case there is ever a discrepancy in records, and this includes making sure you have all of your credit card receipts. Being a responsible business owner is the biggest key in risks.
When considering risks, you must look at it as the merchant and the merchant provider’s risk. There are several different types of risks: strategic, credit and transaction risk. The merchant account providers are well experienced in the risks, and have fee schedules set up to accommodate the risks for providing services.
Strategic risk is the risk the bank takes offering the merchant account services. By not having a strong business plan, the bank may take some financial hits while figuring out how to effectively manage an online service.
Credit risk comes about from charge-backs. These affect the acquiring/processing bank down to the business owners. Charge-backs are payments taken back from the credit card company due to consumer complaints. Good for the consumer, but not so good for the merchants.
Charge backs are more common in certain areas, which will equal larger fees for the merchant. Things such as high-end jewelry, dating/escort services, pornographic sites, and telemarketing to name a few, are all considered high risk.
In order to protect their finances, the merchant account provider will often require a “reserve”. Once the merchant has gone out of business or files bankruptcy, the merchant provider can no longer collect charge backs. With a reserve, any charge backs received after the business closes are still available to the merchant provider.
The last type of risk is transaction risks. This may be due to employee errors (in entering information), system breakdowns, or other natural calamities. This is why it is important to be especially careful in keeping accurate records to make sure that as the merchant you have all the funds deposited that you have earned.
Merchant account services greatly streamline the online shopping experience. Just make sure to do your research and find a company with experience to avoid risk when interacting with your merchant account provider.
*** Learn how to avoid merchant account risk, CLICK HERE ***!
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