Applications and contracts are vital to your future success in this business. Way back when, the application was separate from the contract, but now they are one and the same.The contract defines the rates, the fees, the rules, and the duties of the merchant for card acceptance. It also sets the term. Most of the contracts I have seen recently are three years in duration, which really helps you maximize your return on investment but also keeps your client from jumping ship for what may be just a few pennies per transaction or, worse yet, a lesser deal dressed up as a better deal. As a general rule of thumb, I don’t discuss the term, but I always answer questions truthfully, and all pages of the contract must be provided to the merchant, unless in some cases a link to the legalese is provided on the contract. One of the big players recently pulled a reverse on the industry as a whole and is offering a month-to-month contract. My main partner has joined the club, and we too can offer a month-to-month contract. I prefer the three-year contract, but if that is what you need to get the deal, consider it done. Over the years my attrition rate has been about 6 percent a year, but after fifteen years in the business, I have kept a few clients as long as twelve years.
First of all, if you are out for an appointment or on the street going door to door, thenyou will need several different contracts with different pricing for different situations. I received a call from a garden nursery in Frederick County, Maryland, who said they were having difficulties with their current processor and were also looking for lower rates. I went out to see them and asked if I could look at one of their statements. It turned out they were getting hammered on their mid-qual and non-qual rates (see Chapter 10: Pricing). Suddenly the deal I was prepared to offer them was just a little too good. So I took a chance, which is usually a no-no because you always close the deal when the opportunity arrives, and went back to my office and faxed them everything. While I did save them money, I didn’t give away the store. That account to this very day earns me over $100 a month. Sell one hundred of those and you’re making $10,000 a month! WOW!
Once you sign up, our partners will allow you access to their partner websites where you can download or print contracts with predetermined rates, rates you type in, or even a blank contract on which you write the rates. You must have several copies of contracts with you on each sales call. I can’t tell you how many times I have had to scrap an application and start over because I needed to change something. I also bring multiple copies of the pricing page with different rates on it; depending on how the appointment goes, I might need to increase or decrease my rate.
To complete a contract, you need to get some detailed information about the business. The first thing you need to establish is if they are currently accepting credit cards. In most cases it will be self-evident, but never assume it. If they are currently accepting credit cards, your up-front bonus can be higher, or sometimes they might not be approved if they are already set up but cannot provide a statement. If they have bad credit but a positive processing history, this may allow you to sign them up with your preferred partner who has better pricing. And regardless of what your pricing is, you always want to give your clients the best deal—and your best deal is almost always with your preferred partners. They treat your clients just a little bit better, and your spread is usually just a little bit larger. Our partners are the best of the best. They offer the best pricing to give us the best support as well. The best news of all is that our partners are now your partners.
You will also need to get the company’s legal name, which could be the name of their corporation, partnership, LLC, or nonprofit. Then get their DBA, which is the name they are “doing business as,” which sometimes is the same as the legal name. Sole proprietors usually only have a DBA, which is fine, but you will also write in the legal name in the DBA box. They will need to provide the business location address and legal address. The legal address can be the location, home address, or even a PO box, but the location has to be the address where they are doing business, even if it’s their home address—no PO boxes allowed. They will also need to provide a business phone, a home phone, and/or cell phone number—and yes, they can have a cell phone only. You will also need to get their e-mail address, a URL if they have one, and their federal tax ID (for partnerships, corporations, and nonprofits) or a Social Security number. When the question comes up as to whether or not they have to provide their SSN and a personal guarantee, the answer is yes. I have only ever completed one deal where the business owner did not provide his SSN, and that was because he was adamant about it. Instead he provided his last business tax return and six months of business bank statements and we got him done, but don’t expect this to happen very often unless you are dealing with a super-strong company. If they gripe about signing a personal guarantee, simply state that all they are guaranteeing is that they will pay the fees and not commit any fraud against the card brands. No Problem Sign HERE!
Once you’ve gotten the basics, the clients must provide the type of business and products sold. They need to come up with an average ticket, a high ticket, and a monthly volume for the top two card brands combined. The average ticket is an estimated average of all of the charges they might receive. It is not super-important to underwriting, but just to be sure, I always aim a little high. The high ticket is ultra-important because if you underestimate that number, they could in the name of risk management hold some or all of the amount over the number you write down and they are ultimately approved for. So keep in mind that your client is counting on you to know the business and get them what they need as far as a monthly volume and high ticket is concerned as opposed to just getting them approved, which is sure to come back and bite you in the ass!
If their high ticket is more than $3,000, some processing partners require the merchants’ last three months’ business checking account statements. The monthly volume they provide is just as important. So help your clients get approved for what they need and tell them that if they see themselves exceeding those numbers any time in the future to be proactive and call you ASAP. In that case, have them write a letter to your processing partner on their stationery, listing their merchant number and explaining the new volume they require and why. These are your greatest opportunities to show how awesome you are, how well you know the business, and once again remind your clients what a great decision they made by allowing you to help them sign up! Don’t let them down just to get an approval and your business will soar.
You also need to get an estimate of what percentage of the transactions will be swiped through the card terminal and what percentage will be keyed. The keyed transactions hold more risk for the processor and the merchant, so those transactions are closely monitored electronically. If your merchant flips a switch by keying more cards than their established limit, expect that their money could be held. If their money is held for keying more cards than they first expected, the account might have to be underwritten again or even closed and the funds can be held as long as six months.
Has the merchant or any principle been terminated as a merchant? That’s right, folks: There is a black list for deadbeats. If you were a principle of a previous business that owes its processor money for any reason, then you could be put in the Terminated Merchant File (TMF). I have had a few deals fall victim to this list, and if one of your would-be clients has this problem, you can tell them flat out that there is only one way to fix it, and that is for them to pay their debt and be done with it. Otherwise they won’t be able to accept credit cards for any business they own in the future. Ouch! It’s that simple.
Accepting credit cards is not a right, it is a privilege. An approval is based on faith that the merchant will indeed deliver the product or provide the service of their business. The underwriters establish that faith partially by credit; by proof of business operation, like a leased space; or, for the home-based business, by proof of residency, like a phone or utility bill. Businesses that require higher volumes may be asked for business bank statements or tax records, or sometimes they are even asked to allow a holdback of, say, 10 percent of their total processing volume to establish a reserve. This enables the underwriter to see how things go and then “revisit” it in six months to see if the reserve can be released. So if you’re on the TMF you’re SOL, but, like most things in life, if you just have bad credit, there are alternatives (see Chapter 13: High Risk).
However, if your would-be client has filed bankruptcy in the past, it’s actually not that bad as long as it has been discharged and they have the corresponding paperwork to prove it. What does credit have to do with it, anyway? Well, while the card brands do run the mainframe for authorizations, they hold none of the liability for any transactions. The banks, the processors, and in some cases the ISOs or even the agents can share the liability for transactions. And still you’re thinking, “What liability?” Say a merchant accepts a stolen credit card and doesn’t follow proper procedure, which results in a $400 chargeback (see Glossary). It’s a loss, plain and simple—the merchant eats it. But if a merchant accepts a stolen credit card for $5,000 and when it goes bad but they can’t cover the transaction as far as funds available, then the processor, the ISO, or yes, even the agent (depending on your enrollment agreement) could be held liable.
You must have 100 percent of ownership. This means if there are three owners who equal 75 percent of ownership, then you will also need to find the fourth owner to sign. Other information you need for the contract are the owner’s home address, home phone, date of birth, and social security number. When they ask why we need their SSN, I tell them things like, “We are trying to make sure you’re not a bad guy,” “The bad guys get a merchant account and then run stolen credit cards through them,” and “I know you’re a good guy but they need to double-check.” If you want to get technical you could say, “The Patriot Act says that we have to get that information to be able to set up an account for you.” In other words, we need to be able to positively identify the applicant(s). We will also need to get a few trade references. I try to give them ideas like printers, insurance agencies, or product suppliers, but most new businesses aren’t prepared to give this information, so as a last resort I ask them for friends who are in business. If they are currently processing, you will need to get their last two most recent processing statements. You will need to get their banking information, bank name, a bank contact, and the bank phone number. You will also need a pre-printed business check with their business name and address on it. Recently one of my biggest partners has allowed starter checks, but most ISOs or processors will require new businesses that do not have preprinted checks to get a bank letter. The letter must state that the business owner has set up an account for their business name (legal or DBA), the routing number, and the account number, and the letter must be signed by the bank on bank stationery. If the business doesn’t have a pre-printed check or if they have not yet set up their bank account, just complete the contract and ask them to fax you the letter from the bank.
You will also need a site inspection. You can establish a site by getting a copy of the first page of their lease or a copy of the first page of their phone or utility bill. I know all of this sounds like a pain, but it is all a part of the process. Keep in mind that it’s only a pain for the merchant if you say it is.
Since you entered the rates on the contract before you printed it out, you will now need to get the merchant to sign the document, and this is the most important part. Explain what each page is as they initial or sign it, and you can even point out that the rates and fees areas you told them they would be. They will need to initial all pages but the signature page. Then they will sign beside “Agreed and Accepted Signing for Merchant,” print and date, and then sign, print, and date the “Personal Guarantee.” If they ask whether they have to sign the personal guarantee, the answer is yes, but this only certifies their agreement to pay the fees and not commit any fraud against the card brands. I have never lost a deal over this, but I have had a few say they will do all but that. Then I have to say, “I can’t help you.” A few have responded, “Then we don’t have a deal,” in which case I thanked them, shook their hand, and started out the door. So far, every time, they have then decided to sign after all. Be confident about it and they will sign. Act like it’s a big deal and they might not. We can get it all done without a personal guarantee, but it has to be a super-strong company, and we will need their last tax return and last six months of bank statements. You will also need to sign the contract, as you are a party to it.
Fees are taken either on the fly or monthly. While there is no doubt that most merchants prefer them to be taken monthly, some might want to pay as they go so they don’t feel the sting of a big payment at the end of the month. To make it easy, all accounts default to “daily discount” where the fees are taken on the fly. If you are doing a switch, you need to ask the merchant how they are getting it taken so as not to upset them or their accountant. If the merchant would like it taken out monthly, then you need to mark the comments section “monthly discount.”
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Call me with your questions @ 301 829 3331 James Darle Jones