Cashflow is the lifeblood to all businesses, so if your merchant account stops your payment processing cashflow the effects can be disastrous. Here we look at why your cashflow could be disrupted by your merchant account and how you can prevent cashflow disruption.
How cashflow can be disrupted by a merchant account
There are three ways in which a merchant account can disrupt the cashflow of an online merchant:
- Withholding funds
If the merchant account provider believes a there have been suspicious transactions through the account, the value of these transactions will be held back while an investigation is being made. Technically speaking, this withholding of funds could last indefinitely.
On top of this, funds which are still waiting to be cleared can also be withheld from payment processing.
- Payment processing freeze
A merchant account provider may stop all payment processing by freezing the merchant account. If this happens, you won’t be able to conduct any business.
- Merchant account termination
Payment processing will grind to a halt should the merchant account be terminated. This would happen if the merchant violates terms under the merchant account agreement.
Why a merchant account can disrupt payment processing
When setting up a merchant account, the merchant will sign an agreement as to what type of business is to be conducted and the volume of business being transacted, along with average sales size. This is part of the Merchant Service Agreement (MSA). If the MSA is broken, the merchant account provider is at liberty to withhold payments, freeze payment processing, or terminate the account.
Five ways to reduce payment processing disruption
Here are five ways in which an online merchant can ensure its merchant account provider never disrupts its payment processing cashflow:
- Stick to the agreed volumes of online business, including average transaction size. If volumes look like building, which you should hope they do, let the merchant account provider know immediately.
- Never sell items not on your agreed list, and if you expand products on your site you should tell your merchant account before sales are made. Consider using general terms for items, such as ‘garden furniture’ rather than ‘garden benches’.
- Use separate accounts for separate online businesses.
- Reduce chargebacks to a minimum: the more chargebacks on your account the more likely your merchant account will be frozen.
- Cut the possibility of fraud by ensuring PCI DSS compliance and using appropriate levels of card verification
Online retailers will only realise their merchant account has been frozen when sales stop being processed. If a merchant account is frozen or terminated, the disruption to cashflow from zero payment processing will be the least of an online retailers’ troubles; the effect on reputation could destroy the business.
Innocent merchants sometimes find their merchant accounts frozen mistakenly, so it is worth considering opening a reserve merchant account.
The most important thing to do to maintain merchant account performance is to maintain an open line of communication with the provider: do this and your payment processing will be far less likely to be disrupted.