Unless you are running a business that has stood the test of time as a cash-only entity, accepting electronic payments is turning out to be the new norm today. In that accord, all businesses are challenged with integrating these payment systems into their operations for them to avoid losing customers who don’t pay in cash. However, getting an electronic form of payment is not very straightforward for high-risk businesses. Surprisingly, a considerable percentage of businesses running today are considered to be high risk and if you run one, read below and check out the options at stake for you.
What Are High Risk Merchant Accounts?
If you want to accept credit cards as a form of payment, you will have to pay for this service. This is because the process involves several entities and they also need to make money out of the process. The card networks available today including Mastercard, Visa, American Express and Visa will charge some fees, and the payment processors will charge amount for connecting the banks. These entities oversee the entire process and assume some form of risk, and it is only reasonable that they charge more for high-risk businesses.
Are You A High-Risk Business?
Most people hear high risk and look at the businesses operating in risky areas such as those that deal with illegal drugs and other illicit things. Well, high-risk businesses are not only about which side of the law a business operates but it contains a business whose operations pose a specific financial risk to the payment processors. When determining which businesses are risky, the payment processors look into a couple of aspects. Common factors include the business credit history, years of service, the financial situation of the business, type of business and account history in case your business has used merchant services before.
The type of business is the most significant determinant, and all high-risk businesses are ones that fall under the following list of industries.
- Overseas businesses.
- Network Marketing.
- High Volume transactions.
- Card Not Present transactions.
What Does This Imply For My Business?
Truth be told, being labeled as high risk means nothing but trouble for you. Well, all is not lost as you can still get a credit card processing account. However, you will have to deal with some things that regular businesses do not experience.
- High Fees
All payment processors understand the risk they take by offering your business a merchant account, and they compensate for this by charging you more. High-risk businesses are more susceptible to chargebacks and fraudulent cases thus their rates are higher. When finding a processor, always look at these fees as some of them could have a significant toll on a business even without chargebacks. The set-up fees may range from a couple of hundred dollars to a thousand depending on the account type. The processing fees are also higher with some processors charging about 2% as opposed to the standard rate of 1.59% charged for ordinary businesses.
- Cash Reserves
As a collateral, payment processors will want you to have some cash in your accounts as a risk management strategy. You can have any of the following types of reserves depending on the agreement. A rolling reserve is one where the bank protects themselves from fraud and other incidents where they can lose money. It is more of an insurance policy and is collected by the payment provider who holds a specific percentage of the daily amount accrued for a particular period and then release the money gradually.
The up-front reserve is one which is mostly imposed on new businesses that have limited history that can be used to analyze them. This is determined based on a projected transaction volume, and this amount needs to be deposited with an escrow at the beginning of the contract. If a business cannot raise this amount, they will withhold all your funds until the balance is met.
A fixed reserve is whereby a business holds a specific chunk of every transaction until the reserve reaches the agreed amount. It differs from the rolling reserve in that when the amount is attained, the processor won’t withhold any amount unless some money is withdrawn from the account for some reason.
How To Get Approved For A High-Risk Merchant Account
Getting a merchant account is not easy, and your business needs to be vetted by the high-risk payment processor such as https://thesoutherninstitute.com before determining whether you are fit or not. First, ensure that your financial records are in order as they will be required. They are the best tools that can be used to leverage for the best terms. Some firms shy away from showing these statements due to privacy issues or due to the fear of being rejected by the payment processors, but it is better, to be honest rather than deceiving the processors.
You should also have your processing history if you want to leverage your application. If you have traded for long with more money and few chargebacks, you have a strong case to build. Carry at least six months of processing history, and you could even go up to a year if you have the statements. Ensure that you categorize the statements based on the number of transactions, refunds, total volumes and chargebacks so that everything is clear.
Finding A Reliable Payment Processors
In the modern day, more payment processors are venturing into the fray, and high-risk businesses now have options to choose from. Note that all these processors are not right for your business and analyze them keenly before selecting one. Compare the fees charged by various high-risk payment processors and see which one is more favorable for your business. Look at the reviews posted on the web about the processor, and you could also ask for referrals from counterparts who operate high-risk businesses.
A payment processor is a vital part of your business, and the one you choose can determine the success and failure of your establishment. Do not rush and pick anyone you come across since you could end up regretting dearly.