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What to look for on a Merchant Agreement

What to look for on a Merchant Agreement

Daily our agents and inside sales representatives talk to merchants who are looking to switch their credit and debit card payment processing from other companies to us.

Some of these customers are dealing with bank subsidiaries, third party companies and some with independent sales organizations which in many cases is the reason why so many fees are added to merchant’s contract.
Any profitable business is in it to make money. We all agree that business owners engage in business activities to earn their professional and financial freedom, and no entrepreneur starts a business thinking that they are going to lose money or fail. If you, as a business owner, do not properly calculate your costs, you will have a higher chance of closing your doors. That is exactly what happens when you sign contracts with vendors, landlords, contractors, etc. You MUST have a contract, and most importantly you MUST read your contract. Unfortunately, on a daily basis, we witness business owners who do not read what they are signing and as a result, become victims of certain financial institutions and their predatory business practices.

The credit card processing industry is no stranger to this subject. There are more versions of contracts or merchant agreements in our industry alone than there are processing companies. Sometimes one single processing company might have different contracts based on the merchant they are dealing with and often small merchants tend to see the worse of it. Many merchants do not have the knowledge and resources to hire someone to read a merchant agreement on their behalf. In fact, 93.5% of the time, small business owners are the ones signing bad merchant agreements that end up costing them thousands of dollars in the course of 3 to 5 years based on the length of the agreement they signed.

Aside from all the discount rates and transaction fees you pay for each transaction you process, the Merchant Agreement has detailed information about fees that are typically not discussed when a certain representative of a processing company tries to offer you a so called “good deal.” The most alarming clauses of a Merchant Agreement are the ones that talk about “early termination fees and penalties”, “monthly minimum processing requirements” and “credit card terminal leases”. It is extremely important that you pay attention to those in order to avoid being charged for things you did not know about but signed up for because your sales representative failed to disclose them to you. It is your sole responsibility to read, ask questions and understand every sentence written on your Merchant Agreement. Let’s now review each of those clauses and understand what they mean.

Just for the record we would like to clarify that we are not against contracts that contain cancellation fees. What we are against, is the fact that 99% of the credit card processing companies out there do not disclose in details their contractual clauses including the ones that talk about “early termination fees.” There is a cost to run a business; therefore, we understand why ETFs are in place, but it is unacceptable that these terms are not disclosed, and that is what we oppose here.

Early Termination Fees:

Early termination fee or cancellation fee is a fee charged when a merchant wants to terminate a contract or business relationship with a credit card processing company earlier than what was agreed in the Merchant Agreement. It is common to hear business owners say that they do not have a contract or an early termination fee. Yes, in few cases you might not have a cancellation fee, but you certainly have a contract that could potentially be on a month to month basis. The important part is that you have a contract, and you should know what your contract says. Over 90% of business owners in the United States have contracts that contain “early termination clauses” and 99.9% of the time a substantial amount of money is associated with that provision. A typical cancellation fee charged by a bank based out of the Carolinas is of $495.00. We have seen cancellations fees charged by this bank that are as high as $900.00. They initial contract is usually good for three (3) years, and if you want to cancel it after three years, you will have to pay attention to the date when the contract expires, or it will be automatically renewed for another three (3) years.

Another company that offers you a “free” sophisticated Point-of-Sale system (POS) for retail stores and restaurants will also charge a cancellation fee. They claim and advertise that their POS system is free when in fact it is not. First of all, the POS system is not yours to keep. If you choose to cancel the merchant account half way through the length of your agreement, you will have to pay a cancellation fee. With terminal lease agreements like this, you are paying a lease, and they charge you approximately $75.00 quarterly to keep that terminal running. What is most shocking about this company is that their cancellation fee is the highest we’ve seen so far. They will charge you a cancellation fee based out of all your monthly fees multiplied by the number of months remaining in your contract; see the sample bellow:

We will call it company “HT”. HT will charge you the following:

Monthly minimum fee: $30.00

Statement fee: $9.95

Quarterly POS maintenance fee (we call it a lease) $75.00 every 3 months or $25 monthly.

Customer service fee: $10.00

Total monthly fee: $30.00 + $9.95 + $25.00 + $10.00 = $74.95

HT’s standard contract is five (5) years or 60 months. Let’s assume that you want to switch to TekkPay and cancel your account with HT. HT will make you pay to return their point-of-sale system, and they will also charge you for the total amount of your monthly fees due on your account multiplied by the number of months remaining in our contract. In this example, we will assume that there are 30 months left in your contract. The total early termination fee charge by HT to you is:

$74.95 x 30 = $2,248.50 is the cancellation fee charged to you by HT.

Not all fees are equal but in average HT will charge its customers all the fees listed above to just cancel an account. Now we ask, is that fair? Why after making so much money processing your credit card transactions they would still charge you to cancel your account? There only two reasons for that. They are either doing it wrong or mostly likely pure greed. Being in this business for over ten years and seeing what this country has gone through during last recession due to the same type of predatory practices, we at TekkPay believe in a better way of doing business. We will continue our efforts to educate every business we possibly can to build a better economic future for everyone.

Monthly Minimum Fees:

What would you do if a sales person representing a credit card processing company came to your business a told you that for not processing transactions a certain month you would be liable to pay them a fee of $30.00 or more? What if you were ill and had to close your doors for few months? What if you are just starting and need all the help you can get to be successful and pay the minimum possible? What if you are a non-profit organization doing business with the sole intent to help others and only run events certain months out of the year and can’t afford to have all these fees charged by your processor? Those are some of the questions you should ask yourself before signing a merchant agreement that has a monthly minimum fee. You cannot predict the future, and therefore, you should not have to pay a monthly minimum fee if you are not processing due to understandable reasons that were thoroughly discussed when you decided to open a merchant account to accept credit and debit card payments. Do not fall prey of companies that tell you that these fees are there “but you would not have to pay them because you will always fall above the minimum amount required every month.” That is not true simply because you cannot predict the future.

Terminal Leases:

Terminal leases are one of the worst practices in the credit card processing industry and the only “winner” the financial institution offering business owners this terrible product. Let’s make it simple. Would rather lease or rent a credit card terminal for $29.00 to $41.00 per month instead of buying your terminal for about $150.00? Do the math. When you lease a terminal, you have to return it or spend more money at the end of the lease agreement to buy the terminal. Last week, one of our representatives talked to a restaurant owner who signed a terminal lease agreement for five (5) years and his monthly payment was $41.00. The total amount paid by him after five years will be of $2,460.00 + the return shipping fee. It is outrageous that there are big banks and other financial institutions misleading business owners to sign up for these terminal lease programs. In order to sell you these bad deals, some will lie to you, and other will tell you that if the terminal breaks you get a new one free of charge. Even if you got ten terminals during five years you would still be paying double the cost of the terminals given to you for “free”. We have seen merchant paying more than just $41.00 per month. We urge you to reject these offers. Our company offers terminals or free when you open a merchant account with us. If your terminal gets damaged, all you will pay is the wholesale cost charged to us to provide you with a new one. We make ZERO dollars providing you with credit card terminals, and we intend to keep it that way for as long as we are in business. Our goals is to simply to provide you with the best technology available for the lowest possible cost. Our understanding is that the lowest cost is zero. Keep in mind that a well-maintained terminal tends to last over ten years. In other words, the chances are that you will never need to replace our terminal given to you for FREE.

We at TekkPay hold ourselves to high standards and every time we talk to potential customers all fees and contractual clauses are fully disclosed. Nothing remains hidden and our professionalism, attention to details and excellence in customer service gives us the highest customer retention rate in the whole industry. Talk to one of our representatives and find out by yourself why TekkPay is an industry leader.