Do not sign a contract/addendum with any processor – Part 1

This is Part 1 in a series to educate and help merchants avoid common pitfalls that may hurt them financially and lock them into unfavorable contracts.

Some merchant groups are in the crosshairs of some of the most disconcerting pricing tactics I have seen in my entire career. These tactics combined with what feels like blatant misleading verbiage from some salespeople/processors can cause merchants to make incorrect decisions, grossly overpay for card processing, and be locked into punitive terms & conditions.

Understand that when a salesperson communicates a rate of say “0.20% over interchange + assessments” it may actually mean you will pay much more depending on what the processor deems as “assessments.” When a processor says they will reduce your rate, that doesn’t necessarily mean they will reduce or eliminate the surcharges or hidden fees which may be a major portion of your processing cost. When a processor says they will eliminate surcharges, that doesn’t necessarily mean they will eliminate all surcharges or even most surcharges.

This is a convoluted industry with dozens of rates/fees and ways for salespeople/processors to “Incompletely” communicate the facts. Therefore, it is necessary for merchants to use precise verbiage in negotiations or many salespeople/processors will use the convoluted nature of this industry to incompletely communicate pricing rates, plans, and terms & conditions which may end up being considerably more costly and punitive than you perceived.

The purpose of this series of articles is to educate and help merchants avoid common pitfalls that may hurt them financially and lock them into unfavorable contracts.

Important Point #1

NEVER sign a contract until you have the Terms & Conditions in your hands (they are generally in a separate document and not on the contract) and you fully understand the MAXIMUM penalty for terminating the contract early. You need to read the termination policy versus just ask the salesperson. Most salespeople have never read their own T&C’s and those with very punitive T&C’s may miscommunicate the facts.

Many processors have a liquidated damages clause in there termination policy. Just be aware that some liquidated damages clauses can be extremely punitive and cost any a small merchant $1000’s to exit the contract before the expiration date.

Also, know the length of the contract, the renewal policy, if termination is required in writing, and the minimum number of days before the expiration date in which the termination notice must be given to avoid a penalty (generally 30-90 days).

Lastly, you need to know the termination penalty of your current processor before changing processors so you are not blind-sided by a large penalty.

Important Point #2

“Match the rate” does not mean “Match the cost”. If your existing processor tells you they will match the rate of a competing processor, it doesn’t mean they will match the cost. Again, this is a very convoluted industry. Two processors can offer the same rate, say 0.20% + 10 cents over interchange, and the actual cost can differ by thousands of dollars per year. You need to conduct a detailed analysis when comparing processor pricing and not just focus on the quoted rates/fees.