Tip #3: Be Prepared for Handling High-Risk Merchant Providers
Providers that support high-risk merchant accounts aren’t doing it because they’re charitable and like helping merchants. They also don’t do it because they’re the Evel Knievel’s of payment processing and like the thrill of having risky accounts. Instead, they support high-risk merchants because it can be very profitable to do so, especially when considering contractual obligations and fees. Look for providers that emphasize good customer service and have offerings that make sense for your business: integrations, alternative payment methods, ecommerce processing, POS systems, and gateways, to name a few. Although most will incur extra fees, they can still be reasonably priced and a worthwhile investment.
Understand Merchant Account Fees and Read the Fine Print
Merchants need to be careful while setting up a merchant account with high-risk providers, and should always be aware of setup and operations fees they’ll incur. For starters, high-risk merchants are charged higher payment processing fees on top of the interchange rate. In some cases, they could find themselves spending 400% more than lower-risk merchants of a similar size. Additionally, payment processors can charge exorbitant chargeback fees (understandably so, as many high-risk merchants are more vulnerable to frequent chargebacks).
These fees can significantly reduce the profitability of your business in the medium to long term and makes starting a business in a high-risk industry that much riskier. On top of additional fees, your acquiring bank could apply strict cash reserve requirements to your merchant account. Although the structure of the reserve requirements varies, they all reduce the short term cashflow of your merchant account.
Most of these restrictions are unavoidable, but it’s still important to shop around and find the best rates and features available. Some important questions to ask as you decide where to open your high-risk merchant account:
- Is there an early termination fee? How much is it?
- What are the transaction fees?
- How costly is it to set up an account?
- How much will reserve requirements impact my bottom line?
- How high are chargeback fees?
- Are there transaction volume caps?
- Are there other technical or industry-specific obligations for my account?
Renegotiate Your Rates Annually
Another important note is to remember to renegotiate your rates annually. Any more frequently and you’ll most likely be denied and waste time, but any less frequently and you could be missing out on better rates. This only applies to merchants who keep a good track record and are in good standing throughout the year, so remember to be responsible and maintain a tidy merchant account.
As a side note, try not to lock yourself into long-term contracts and look for providers that offer flexible options like month-to-month contracts. It’s also important to keep an eye out for automatic renewal clauses. You will find it much more difficult to renegotiate a contract that has a term of multiple years, and this is especially true if that contract auto-renews.