7-2 Declaring Processing Limits & Tickets

Declaring the Correct Credit Card Processing Limits & Tickets

Hopefully, you have already read section 5-3 of this guide titled " Profile Your Business ", and you know the basics about which type of merchant account is best for your business. If you haven't, we strongly recommend that you click back and read that section before proceeding.

There are a couple of things that you will need to put a lot of thought in to, regardless of which type of merchant account you will be applying for. Failing to declare the correct processing volume, average ticket amount, and transaction percentages can be devastating to your business, and can result in your merchant account being terminated, your money being held for 6 months or longer, hefty fines, or worse.

Processing Volume/Limit - The processing volume or limit is the gross amount of money that a processor will allow you to charge in Visa and MasterCard sales in a monthly period. We had made a comparison to a merchant account being an open line of credit in the previous section. Think of the processing volume that you declare on your merchant account application as the limit on an open line of credit from a bank. They are very much the same thing. If you exceed the processing volume that you declare on your application, the processor will take action to stop the violation. The things a processor can do when a violation like this occurs are discussed in detail in the next section, and they're not pretty.

If we've made you nervous we're glad, because this is a serious issue. On the bright side, it is not difficult to declare the correct processing volume once you know what you're doing. The first important point to make is that there are no penalties for not meeting the processing volume that you declare on your merchant account application. This means that you can declare a processing volume/limit of $5,000 a month, not process a single penny, and you will not be penalized in any way. Granted, this would not be great for your business's cash flow, but you would not face penalties or rate changes from the processor. This does not mean that you should grossly overestimate you processing volume and request an unrealistic processing limit on your merchant account application, but it is in your best interest to pad the numbers within reason in order to protect your business from overages.

The processing volume that you declare on your merchant account application is something that the processor is going to look at very closely. After all, this is the amount of credit they are agreeing to grant you if and when they approve your application. With this in mind, you don't want to declare a volume that is so high it will hinder your application from getting approved. Don't pad your numbers to the point where you make the risk associated with your merchant account application unacceptable to the processor.

It is not difficult for an established business to figure out the correct monthly processing limit to declare. Simply look at your past processing history, take the highest processing month (excluding holidays), and then increase that figure by a small percentage to allow for business growth. It is not that easy to correctly declare the processing limit for a new business.

The best way to figure out the processing limit to declare for a new business is to start by making an educated guess at what the business's gross sales will be each month throughout the year (excluding holidays). Take into account any seasonal swings that your business will have. For instance, the highest grossing month for a craft business will probably be in the summer time when craft fairs are frequently held. Once you have figured out the highest grossing month, and you have an idea of what the gross sales will be, you need to figure out what percentage of that number will be Visa and MasterCard sales.

If your business will be using a retail merchant account you will want to assume that about 30% of that gross amount will be made up of Visa and MasterCard sales. If you have an online or mail order business you will want to assume that close to 100% of that figure will be Visa and MasterCard sales. Take the appropriate percentage of your gross sales, depending on your business type, and then add 10% of the number to itself and round up to the nearest $500 increment. For example, if your final figure was $3,000 you should add another $300 to that number for a total of $3,300 and then round up to $3,500.

This is not an exact science and every business is different. If you have any doubts about the proper processing limit to declare for your business, you should talk it over in detail with your merchant account sales representative. If your representative does not sound like they know what they're talking about seek advice elsewhere by asking to speak with a supervisor or another representative. Don't worry about hurting the representative's feelings. Declaring the correct processing limit for your merchant account is crucial to the success of your business. You'll get over feeling guilty about hurting a sale's reps feelings in no time.

Average Ticket - When a processor asks you for your average ticket, they are asking you for the dollar value of your average MasterCard and Visa sale. The average ticket is the average amount of a sale. Read your merchant application carefully because some processors ask you to declare a ticket limit instead of an average ticket amount on the application. This means that instead of declaring your mid-range sale amount, you should declare the highest sale amount. Some processors will even go so far as to ask for both of these pieces of information on their applications. In this situation you will be asked to declare your average ticket amount, and also the highest overall ticket amount that you expect to process. This is usually done to take into account businesses that have a relatively low average ticket but process a large sale every now and then.

Like the processing limit, the average ticket amount is another figure that processors take very seriously. If you process a transaction that is in gross excess of the average ticket amount that you had declared on your application you will be in for a world of hurt, and you could face a number of different problems including having the funds from the sale held by the processor for as long as 6 months, having your account closed, or both.

Although the average ticket is important, it is not too difficult for a new business with no processing history on which to base a judgment to declare a correct ticket amount. In order to figure out the correct average ticket amount to declare for your business you should look at the services you will/do provide, or the products that you will be/are selling and figure out a range of transaction values.

Use your business plan, or make an educated guess at what you think the lowest and highest possible transaction amounts will be. Use these two figures to find the average sale amount. Once you find the average amount, you should do as we suggested with the processing limit and pad the number a little bit within reason. Again, you do not want to raise your average ticket to an unreasonable amount but you should increase it a little bit to be safe. There are no penalties if you over estimate your average ticket amount. The only time you will run into trouble is if you do not declare a high enough ticket amount on your application.

If you are unsure of what to declare as an average ticket amount on your processing application you should talk it over with your merchant account sales representative until you feel you have figured out the proper amount. As we suggested above, don't be afraid to ask for a second opinion if you feel your sales representative does not seem confident about their recommendations. It is important and helpful to have a knowledgeable rep when setting up your merchant account.

Declaring the Incorrect Average Ticket and Processing Limit - Don't forget about these two figures after you have been approved for a merchant account and you begin to process credit cards. You can rest assured that the security department at your processor is watching every transaction that runs through your merchant account, and they remember exactly what you declared on your application. If after you begin processing you realize that you underestimated one or both of these figures, you should contact your merchant account provider as soon as possible to try and have the limits on your account raised, or you should open a new merchant account with the correct volumes and ticket amounts.

Increasing Your Average Ticket and Processing Limit - For most businesses, the average ticket amount will not change over time because the business continues to sell the same products or deliver the same service. Usually, the processing limit is the only figure that needs to be raised as the business grows and sales increase. Most processors will allow your processing limit to increase naturally over time. Processors understand that as a business grows the gross sales will increase, and Visa and MasterCard sales will increase as well. Please notice that we said processors will allow your processing limit to increase naturally .

Doubling your processing volume in your first six months of business is not considered natural growth. When you set up your merchant account, ask your sales representative how sensitive your processor is to overages and limit increases. Some processors will not increase your limit at all regardless of business growth or age and instead will require that you request an increase each time you need one. Be aware of your processor's procedure for limit increases, and if they will naturally increase your limit for you, or if it is something that you need to request.

If you do need to request a processing limit increase for whatever reason, you will need to contact your merchant service provider to do so. A good place to start is to call the sales rep that originally set up your account. Depending on the volume increase that you are requesting, the age of your account, and a few other variables, getting your processing limit increased may be as simple as filling out a quick change form, or as time consuming as opening a whole new merchant account. Of course, if you have a good merchant service provider this will not be time consuming at all.

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