Selling a merchant services payment portfolio is a significant decision. When done well, sellers can walk away with a principal lump-sum payment. If executed poorly, a seller risks leaving a lot of money on the table.
How can you help ensure you position your portfolio in the best possible light? By avoiding common payment portfolio sales mistakes, agents and Independent Sales Organizations (ISOs) sometimes make when selling a portion or all of their portfolios.
By reading this post, you’ll learn about the top payment portfolio sales mistakes that include:
- A lack of planning
- Residual concentration
- A lack of diversification
- Attachment to assets
- A lack of monitoring
- High basis points per merchant
- Higher than normal attrition
1. A Lack of Planning
Rushing a situation rarely has a positive outcome. That same rule applies to selling your portfolio. Sometimes, you can’t help but need to sell a part or all of your portfolio urgently. However, don’t let that urgency cause you to sell to the first buyer without doing your homework.
Rushing this process can result in:
- Missing out on utilizing growth strategies before selling
- Undervaluing the worth of what you sell
- Complex negotiations due to having unclear expectations
Thankfully, a lack of planning is an easily solvable mistake in payment portfolio sales. You can remedy this situation by gathering and organizing all portfolio-related records before listing your portfolio for sale. Trying to reactivate any inactive accounts is another smart move.
Also, use this time to prepare an exit strategy. This strategy can detail preferred timelines and buyer profiles, helping you stay on track during the sales process. An excellent plan should also allow for contingency steps should your portfolio experience rapid residual loss.
2. Residual Concentration
Imagine having one merchant that makes up 100% of your residual income. On one hand that may sound great because there is only one account to service. However having all of your residual income with one merchant creates massive residual risk when that merchant cancels their merchant account. This concept is called residual concentration where a few merchants make up most of the residuals in the portfolio. Residual concentration is one of the highest risk factors in a merchant portfolio. A great merchant portfolio will have residual payouts spread more evenly amongst the merchant accounts.
Avoid this payment portfolio sales mistake by basing your decision to sell on portfolio performance metrics, industry reports. You don’t have to rule out tips completely, but don’t let them supplement a lack of monitoring your portfolio.
3. A Lack of Diversification
Maximizing the worth of your portfolio by staying in a single industry or sector is tempting, especially when it’s performing well. However, all too often, agents and ISOs using this strategy find it’s only a matter of time before it blows up in their faces.
A lack of diversification limits your pool of buyers and reduces your portfolio’s valuation amount, especially if your chosen industry or sector takes a sudden downturn.. Diversification not only applies to the industry type but also to the location. For example, Merchants located in a region that is devastated by a natural disaster may experience a drastic drop in income.
Sometimes, it’s helpful to wait before selling and utilize a strategy or two aimed at diversifying your portfolio. Consider targeting new sectors and companies outside of where you’d typically find and acquire clients. It could help you avoid a payment portfolio sales mistake that can catch a seller off guard. A fully diversified portfolio demonstrates to buyers that you are well-versed in managing risk and developing a strong, stable investment portfolio.
Claim Your Free Portfolio Valuation
4. Attachment to an Asset
Many merchant portfolios are being attached by processors for portfolio loans or partial sales of merchant accounts. Merchant Portfolios with liens on them are easily remedied by paying off the loan at closing. However agents that have sold a fixed percentage of their merchant portfolio may have difficulty selling the remainder of the merchant accounts due to diminishing returns on the remainder of the merchant accounts.
A helpful way to resolve this payment portfolio sales mistake is by having a trustworthy third party step in to evaluate your portfolio. For example, Velocity Funding offers free portfolio valuations. Instead of DIY investing and second-guessing, let one of our experts take an objective and educated look at your portfolio’s actual value.
5. A Lack of Monitoring
It’s tempting to leave a successful portfolio on autopilot. However, this major mistake in payment portfolio sales can wreak havoc on your residual income. Unfortunately, not staying on top of your merchant accounts can also leave you unaware of underperforming accounts, chargeback issues, and other problems that need correcting.
Correcting a lack of monitoring is relatively straightforward. Reviewing residual reports, trends, and account activity can keep you fully informed. It’s also easier to spot and correct mistakes, such as early churn signs or processing agreement-related issues, when you know the ins and outs of your portfolio.
In the months leading up to a sale, a lack of planning can have devastating results for sellers. Showing a potential buyer a well-documented and clean report detailing portfolio growth can strengthen your negotiating power.
6. High basis points per merchant
Maximizing profit by increasing margins sounds like a good strategy when boarding new merchant accounts but when building a strong, valuable merchant portfolio it is better to have lower margins that will create a merchant account for life. Let’s face it, merchants hate paying credit card processing fees and businesses paying high processing rates will easily switch processors when the next agent offers a lower rate. The best defense is to offer low rates and great service so there is no reason to switch.
7. Higher than normal attrition
Higher than normal attrition is an obvious problem when selling a merchant portfolio. It is critical to find out what is causing the attrition. Some factors are discussed above. Other reasons may not be so obvious. For example, an agent that over promises monthly savings or better service but does not deliver will experience higher attrition. Industry wide static attrition should be less than 20% per year. Any attrition higher than 20% indicates a problem with service or rates.
Contacting Velocity Funding before selling your portfolio can give you the peace of mind you seek. We’ll help you avoid common mistakes in payment portfolio sales while ensuring you receive a maximum value offer for your portfolio. Collaborating with industry professionals enables you to identify blind spots regarding your portfolio that even experienced sellers encounter.
Get Help From Velocity Funding
As you’ve learned, payment portfolio sales mistakes exist in many ways. Even the most skilled agents and ISOs occasionally make mistakes. Every mistake is avoidable with knowledge and experience.
You can avoid portfolio-related pitfalls with Velocity Funding in your corner. We work with agents and ISOs, evaluating and purchasing merchant service account portfolios. Velocity Funding makes maximum value offers for portfolios. We also specialize in closing sales quickly, with most transactions completed within just six days.
Don’t let payment portfolio sales mistakes derail your hard-earned success. By preparing early, monitoring closely, and seeking expert guidance, you can experience the difference between an average payout and a maximum-value way to sell your portfolio.
Get Your FREE Merchant Services Portfolio Valuation
Dean Caso is a Managing Partner at Velocity Funding, which he founded with this company’s other Managing Partner, David Caso, in 2006. Caso graduated in 1983 from Babson College with a Bachelor’s degree in Finance and Investments. With over 35 years of experience, Caso has acquired over 300 credit card processing portfolios. He has a superior eye for opportunity and an unwavering commitment to excellence. Caso’s leadership instills confidence, fosters innovation, and inspires those under his professional command. His decades of industry experience and proven track record of success continue to drive Velocity Funding’s growth and industry-leading presence.