Understand These Key Terms Before Signing Merchant Deals

Signing a merchant deal is a significant decision. An enticing offer can help you with life-related expenses, reinvesting to expand your business, or exiting the merchant services industry. However, you don’t want to rush into this process without understanding several essential terms.

Sometimes, the terms and conditions in a merchant services-related agreement can make or break a business. Before putting pen to paper, learn this industry’s most important terms.

You’re about to learn about key terms before signing merchant deals, including:

• What do interchange fees, chargeback fees, and other expenses mean
• How terminations, payment terms, and warranties impact your bottom line
• Potential factors to watch out for before signing a deal

Know These Key Terms Before Signing Merchant Deals

Chargeback Fees: More Than Just Penalties

Finding anything more dreaded in the merchant services world than chargebacks is difficult. A chargeback takes place when a customer disputes a transaction, asking their bank or credit card provider to reverse it. If reversed, the merchant must refund the customer in addition to getting hit with a chargeback fee.

Chargeback fees not only negatively affect merchants. They can also damage the stability and residual income that agents and ISOs rely on. Understanding this key term before signing a merchant deal can save you a lot of future confusion and frustration.

Some providers may also bundle chargeback monitoring services into their platform, often for an additional fee. These services can help:

• Detect patterns in disputes
• Automate representment responses
• Provide early warnings, reducing the risk of merchant account termination

Why It Matters: Excessive chargeback fees can trigger account holds or terminations in the worst cases. Some providers may even impose chargeback thresholds, resulting in punitive action when exceeded.

Interchange Fees: The Core Cost of Every Transaction

These fees are like the backbone of the credit card processing world. Card networks, such as Mastercard, Visa, and other major providers, set interchange fees. Interchange fees are paid from the merchant’s bank (or acquiring bank) to the cardholder’s bank (or issuing bank). They’re non-negotiable and apply to all processors industry-wide.

Interchange can seem confusing, especially for merchants new to credit card acceptance. However, that’s where ISOs and agents add value. By helping merchants understand how interchange fees work, you position yourself as a knowledgeable business partner, not someone just looking to make another sale.

Why It Matters: When merchants trust the structure, they’re more likely to process consistently and build long-term working relationships with an agent or ISO. Explaining this key term before signing a merchant deal may take extra time, but it can save merchants from confusion in the future.

Also, be transparent about tiered vs. interchange-plus pricing. Merchants typically prefer interchange-plus pricing, as it offers clearer transaction cost-related insights. Tiered pricing may result in higher-than-expected costs. Knowing which model is in place and clearly explaining the difference can be a major trust builder.

Monthly Fees: Clarify Services and Add-Ons

While no one enjoys paying for them, monthly fees are often a part of life and business. The same applies in the merchant services industry. In this realm, these fees may include:

• PCI compliance fees
• Software fees
• Statement fees

Why It Matters: Explaining monthly fees upfront is a smart move. It not only helps manage expectations but also provides merchants with an understanding of what they’re paying for. This situation helps merchants avoid feeling confused later, while agents and ISOs deal with fewer frustrated merchants in the future.

Payment Terms: Planning Cash Flow

Funding timeframes, or how fast a merchant receives money from debit and credit card transactions, are vital in any onboarding conversion. Understanding this key term before signing a merchant deal lets a merchant know when they get paid. This aspect of a merchant deal depends on the processor, type of business, and transaction volume.

Possible payment terms include:

• Next-day funding
• Two-day funding
• Weekend-adjusted funding

Why It Matters: Helping merchants understand payment terms lets them plan accurately while reducing the chances of payment-related inquiries after they are onboarded. It might seem small, but explaining payment terms can make a big difference in building credibility with merchants.

Termination Policies: Ensure Getting Out Doesn’t Cost a Fortune

While anything related to termination might seem like something you don’t want to discuss, explaining termination policies means providing vital information. Explaining this key term before signing a merchant deal can mean covering:

• Contract lengths
• Auto-renewal clauses
• Early termination fees (ETFs)

Outlining the terms for ending an agreement protects merchants, processors, agents, and ISOs from unwanted outcomes if a business relationship isn’t working.

Why It Matters: Being transparent about termination policies reinforces your role as a trusted advisor. Ensuring everyone understands this key term before signing a merchant deal prevents issues during transition periods or contract renewals. Merchants appreciate clarity and transparency.

Warranties: Offer Peace of Mind in the Tools Provided

If you’re offering terminals, point-of-sale (POS) systems, or other merchant hardware that must be purchased, these companies may understandably have questions about support, service coverage, and warranties.

Explaining this key term before signing a merchant deal has less to do with agents and ISOs and more with equipment providers, since they typically set the terms in this situation. So, having this information and being prepared to explain helps all parties avoid confusion.

Why It Matters: Proactive conversations can prevent support-related headaches while reinforcing your commitment to a merchant’s success. It’s also important to understand whether equipment warranties are limited to manufacturer defects or if they include accidental wear and tear, or replacement turnaround times. Explaining these equipment-related concerns can present upsell opportunities while providing trust.

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Additional Terms Worth Discussing

Even after understanding key terms before signing merchant deals, specific clauses in merchant agreements deserve attention:

• Being forced to use outdated technology
• Rate changes are subject to change without notice
• Excessive penalties for not hitting volume targets

Need more help understanding interchange fees, termination policies, and other aspects of a merchant deal? Contact Velocity Funding. Our merchant services portfolio experts will ensure you get a maximum-value offer that leaves no money on the table.

If you’re an ISO or agent evaluating a deal from a prospective buyer, apply the same logic. Whether reviewing a buyout proposal, revenue share offer, or an agreement, dissect every clause. Velocity Funding can assist you in evaluating complex proposals and flagging red flags before you make a commitment.

A Little Preparation Goes a Long Way

Understanding key terms before signing merchant deals creates more informed merchants. When that happens, it typically leads to these companies feeling confident in long-term partnerships with agents and ISOs. And when that happens, it can also lead to satisfied customers and ensure everyone wins.

Clearly explaining warranties, monthly fees, and other key terms:

• Helps merchants make confident and informed decisions
• Reduces onboarding friction and post-sale confusion
• Strengthens long-term relationships
• May lead to more referrals
• Builds a stable and profitable portfolio

A great step to take before selling your portfolio is knowing what it’s worth. Velocity Funding offers free portfolio valuations, taking the guesswork out of determining the worth of your accounts.

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