No one wants to read the contract before signing up for a service, but with this industry it’s necessary. If you sign up with a full-service processor, you risk being locked into its services for several years, paying more than you expected. If you sign up with a payment facilitator, you may find out too late that it has certain processing limits or doesn’t support businesses in your industry, resulting in frozen funds or a closed account.
The best credit card processing companies provide their services on a month-to-month or pay-as-you-go basis, and don’t charge any early termination fees.
Used by ISOs, MSPs, and direct processors, standard contracts typically have three parts: the application, the terms of service and the program guide. Some applications have links to the terms and guide, but most often, you’ll need to ask the sales rep to send these documents to you separately.
Application: Usually, this form includes credit card processing rates and some fees. It asks for your bank information, Social Security number and signature. Don’t provide personal information until you’re ready to sign up for an account, have read the contract in full, and have verified that the rates and terms are correct. Most contracts include a personal guarantee that allows the processor to collect money from you directly if your business can’t pay its processing bills, and allows it to perform credit checks on you.
Terms and conditions: This document describes the length of the term and additional fees that your company may incur. Most have three-year terms, and automatically renew for one or two additional years if you don’t cancel in writing within a 30- to 90-day window. One clause to watch out for is “Additional Services.” Note that it doesn’t explain exactly what these additional services are or what they cost, but does mention that you have a short window – usually 30 days – to opt out if you don’t want these mystery services and fees.
Program guide: This is where you’ll find cancellation instructions and the fees that apply if you decide to close your account. Sometimes processors don’t provide the program guide up front, and if you don’t ask for it, it will be tucked in with the processing hardware you order. If you sign a standard contract and then need to cancel your account before the end of the term, you will be charged a steep early termination fee for hundreds of dollars. Some long-term contracts also have liquidated damages clauses that can cost you even more money. Sneaky processors may claim not to charge early cancellation fees, but instead charge early termination fees (ETFs), early deconversion fees (EDFs), exit fees or lost profit fees.
Key takeaway: If the processor you are considering has a lengthy contract, ask your sales rep if month-to-month terms are available. Also, request to waive the early termination fee and any liquidated damages.
Most payment facilitators have user agreements instead of contracts. These are much shorter, but still important to thoroughly read. You want to check the list of prohibited goods and services to ensure the processor will work with your business. You also want to read the processing contract terms to find out if there are any processing limits, to make sure they won’t affect your business. One factor to keep in mind is that aggregators are very risk-averse and will freeze your funds if there’s anything about your transactions that looks suspicious, such as a sudden spike in volume or transaction size.