You can shop and research and finally you're ready to select the best credit card processing option for your company! You'll be the hero...saving money, time and boost your profits! Perhaps you picked an integrated payments solution that actually works with sales, accounting, ecommerce or mobile devices. Before you sign up, make sure you read the contract and understand some language that may cause you trouble in the future. Recently, we sat down with Jay Reeve, a 20-year Payments Attorney, an attorney exclusively focused on the payments industry for the last 20+ years to share the pitfalls and impacts of merchant contract terms for your integrated payments that could save you headaches down the road if you can avoid them.
Nowadays, it's more than just pricing. The actual terms and conditions of a merchant account agreement are different from processor to processor. Ideally, you’ll want to work with a company that is processor agnostic, meaning they work with multiple processors so you get the contract that’s right for you. For example, one of the benefits that you get from VIP Payments is that you have the opportunity to look at different contracts. Some things will be common among several contracts, but some things will not so you’ll know you’re getting the best provisions when you work with VIP.
One of the first provisions that you'll want to look at when you look at these contracts is the Term. The Term Provision that we have listed below is one that a lot of processors use and it's one of the most egregious for a couple reasons. It's a three-year term combined with what you will probably find in most agreements, an auto-renewal clause:
Sadly, you could be stuck with this processor exclusively for three years. And worse, these contracts are what we call “evergreen,” which means if you don't terminate it promptly and within the required time period, then the next thing you know you just automatically re-upped for an additional three-year renewal term.
Also, this one has a 90-day renewal period which means you've got to give notice at least 90 days prior to the expiration of the initial term or you'll automatically renew for an additional three years so that's just one of the provisions that that you'll want to look for and be careful of when you're looking at looking at these merchant agreements.
Indemnification is also a provision that’s in every merchant contract, but indemnification provisions are not all the same. Ideally you want to find a mutual indemnification clause. And if it's not, look for something that’s halfway reasonable and doesn't hold you liable for things that you should not be liable for, specifically things that are outside of your control. So be sure to compare contracts and look at the indemnification provisions to see how fair and reasonable they are. Here’s what to watch out for and avoid:
All contracts have a termination clause, but they can be troublesome and helpful, so be careful.
Price increases can be a nature of the beast in the processing world and some of them are processor specific so if you've got a clause that allows you to terminate if they raise your pricing then that'll be beneficial for you.
The exclusivity provision is growing in frequency. In a lot of cases they’re specifically tied to the liquidated damages clause or early termination fee (ETF) clause that you'll see in a lot of these agreements. You want to stay away from the ETF clauses if possible and you want to stay away from exclusivity if possible.
When it’s not possible to avoid exclusivity it is not nearly as bad if you don't have a big early termination fee section or liquidated damages section so be sure to pay attention to those. Read the language on exclusivity and early termination fees very carefully.
If you don't understand what you’re being offered, we'll help walk you through it and explain what the risks are related to those provisions with no obligation. Contact our experts at VIP today to start saving time and money with Level 3, ERP-integrated credit card payments. Give us a call at (888) 791-9390 ext. 101 or visit or email us.