As you are probably already aware, in order to accept credit cards for your business, you have to open a merchant account with a bank. It is generally easy to open a merchant account, but that doesn’t mean everything will go smoothly over the long haul. Many businesses end up in a situation where a significant amount of their revenue processed by credit card gets frozen for six months or a year. It can be devastating to have the bank hold onto the funds that you may need to pay your affiliates, vendors, employees, or other expenses, according to http://www.gosnellassoc.com.
So why would your processor hold your funds? Your funds can be held for a variety of reasons. It basically comes down to whatever the bank feels is fair based upon what they estimate your chargeback and refund rate could be in the future and the overall risk they perceive your business to be in general. There are many clients that had 25 per cent to 50 per cent of their funds held for six months because they were perceived by the processor as being high risk because they processed a lot more volume than they were originally approved for. It was a nightmare for the clients who had to deal with these issues. You sure don’t want to be in that situation if you can avoid it.
Here are some steps you can take to minimise this risk.
- Before opening a merchant account, find out what rules and processes your bank or merchant processor has in place for determining when to hold funds. Most merchant processors will tell you in advance that if you ever run a certain volume through, then they will hold a certain percentage as a reserve for a set period of time. You can then pick a merchant processor to work with that has a policy for holding funds that you are comfortable with.
- When you open your merchant account, make sure you get pre-approved for a higher volume than you may need in the beginning. This can help give you some room for growth without it automatically looking like you have exceeded the pre-approved limits.
- Communicate with your merchant processor in advance when you are expecting to see large spikes in credit card volume. For example, if you are launching a new product and know that you may have three months out of 12 months where the majority of the volume will happen for the entire year, you should communicate that fact to your merchant processor. Find out how they plan to handle the reserves from such sudden spikes so you can plan your cash flow and expenses accordingly (or still have time to open another merchant account if what your current merchant processor plans to do isn’t acceptable).
- Consider having two merchant accounts with separate processors/banks and rotating half of your sales through each account. This can help you reduce the risk of having one bank control all of your funds in the event there is a problem. Just make sure that if you open two merchant accounts, that one of them doesn’t prohibit you in their terms from having a separate one.
What to do if some of your funds are frozen
If you have some funds frozen, you or your attorney should work with your processor to determine a release schedule that is fair. You don’t have to just accept what they offer the first time. Make them justify how they are calculating their risk and show you why it’s fair. But the processor has the leverage because their agreement always gives them the sole discretion in determining reserves.
Four things to look for in a business bank account
Financial institutions across the country want more business banking customers. To entice new small business owners and entrepreneurs, banks offer a variety of bonus features with their business bank accounts, according to www.businessnewsdaily.com.
If you are on the hunt for a small business account, here are some popular extra services to look for. (Note: While some of these features may be included as part of your overall bank-account package, others require additional fees.)
Payroll services: As small businesses hire more employees, a bank-offered payroll service may simplify bookkeeping for busy small business owners.
“If you don’t quite have the budget for an independent bookkeeper, many financial institutions offer access to payroll software or services to help you get things done,” said Jennifer Martin, small business coach and owner of Zest Business Consulting.
Payroll services are also offered by independent payroll companies. Before signing up for the service through your own financial institution, compare the features of bank-offered programs against those offered by outside companies, advised Rohit Arora, CEO of Biz2Credit, an online credit resource for small businesses.
“In the case of bank-offered payroll, one should look at what happens in case of nonsufficient funds,” Arora said. Make sure to compare the fees banks charge with those charged by normal payroll service providers, Arora said.
Fraud insurance: One new feature popping up in banking packages is fraud insurance coverage. “Fraud insurance is provided by the lending institution to prevent any loss in the business account because of fraudulent transactions,” Arora said.
Arora explained that fraud insurance is important for business accounts in which more than one person has access to the account, especially when the accounts normally have multiple transactions on a daily basis.
“It’s important to have fraud insurance included so that it not only prevents any loss of money through fraud, but also prevents any bounced checks by the vendors,” he said. “This can lead to adverse remarks on the business credit.”
Discounts on business-related items: Money-saving offers from other companies are valuable bonus features available with some small business banking packages. Martin noted that some banks offer discounts on partner goods and services because of the sheer volume of purchases by bank customers.
Ask your banker for a list of partner companies offering discounts to small business banking customers. Typical partners include hotels, insurance companies, airlines and office-supply stores.
Control over employee spending on company credit cards: One risk of issuing company credit cards is that staff may use them for non-business expenses. A service that gives small business owners control over staff spending can reduce that risk.
Banks regularly offer new features to their business banking customers. Keep your eyes open for features such as access to peer groups, bank blogs with useful business content, business-related classes and educational material, and financial planning services.
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