Cancel Merchant Account Cost & Considerations

Cancelling a merchant account is as simple as contacting your merchant service provider and requesting that the account be closed. For security reasons, some providers may require you to submit information verifying your identity before they will process a merchant account cancellation request. Although the process of closing an account is simple, it is sometimes accompanied by a surprise in the form of a potentially large early termination fee.

Early termination fees range from $50 up to $500 or more and they're used by merchant service providers to retain merchants for a specified period of time. Finding out that you have to pay a hefty cancellation fee in order to close your merchant account can be a very frustrating experience, but there are things that you can do to lessen or even eliminate the fee.

The first thing to do is to check whether or not the early termination fee is still valid. Many merchant service agreements have a clause that voids the termination fee if processing rates are raised within the contract term. For example, if discount rates are raised on a merchant account in the first year of operation the early termination fee for that account would be waived regardless of the contract term.

Due to the high turnover in the merchant services industry contributing to the lack of knowledge of many sales representatives, you can't rely on you merchant service provider to bring this loop-hole to your attention. Even if they insist that such a provision doesn't exist in their agreement, check for yourself to be sure. It's not uncommon to find a salesperson in the merchant service industry that has never read their acquiring bank's processing agreement in its entirety.

If you can't get around the cancellation fee to terminate your account, you may find that's it's cheaper to leave the account open until the contract term expires. Depending on the total of monthly fees your merchant account has, it may be less expensive to leave the account active and pay the monthly fees until the terms ends and you can close the account without penalty. For example, a merchant account with a $20 monthly minimum and a $10 statement fee costs $30 per month if there is no processing volume. If the cancellation fee for the same account is $250 and there are four months left in the account's term, a merchant would save $130 by leaving the account open instead of cancelling and paying the fee ($250 – ($30 * 4months) = $130).

This last point is for merchants that are cancelling their merchant account to open a new, less expensive account with another provider. Merchant service providers hate to lose a client to a competitor and they will always try to retain a your business. The first thing that a provider will ask when you call to cancel your merchant account is "why" and the second is, "what can we do to keep you." The answer to this question is usually lower rates and fees. This is where many merchants get frustrated because they realize they didn't need to cancel their existing account and devote time and energy into finding a new one. A single phone call to their existing provider may well have produced lower rates and fees at a fraction of the energy they've expended finding a new merchant account.

The lesson here is to save yourself time, energy and money by periodically calling your merchant service provider to let them know that you're shopping the competition. You can even use a free comparison service like CardFellow.com to get merchant account quotes that you can send to your existing provider. This will help to keep your rates low and it will eliminate the hassle of cancelling one merchant account just to open another.

Questions & Comments

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On May 12, 2009 Terry said:

We have been forced to close our business due to the economy. We are at a net loss and still paying off business debt from personal accounts. Is there a way to close our merchant account without paying the cancellation fee, or at least at a reduced rate? Our provider has a $500 fee. I can understand them not wanting to make businesses move, but our business has been closed and our corporation dissolved by the state. Do we have any hope? Thanks

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On May 12, 2009 Ben said:

Hello Terry, I'm sorry to hear that you've had to close your business. It's certainly an unfortunate and all too typical scenario in this economy.

It may be possible to cancel your merchant account without paying the cancellation fee if the rates have been raised during the contract term. You'll have to take a look at the merchant service agreement that you signed when opening the account. There should be a clause that explains the outcome of the contract term if rates and fees are raised. Make sure to research this yourself. Many merchant account sales reps aren't aware of the various clauses in their processing bank's agreements and they may tell you such a clause doesn't exist when in fact it does.

The catch there is that some merchant accounts have an auto-renewal period where the contract term renews itself if the account isn't cancel within a short window. When you're looking over your agreement regarding, look for language regarding an auto-renewal. If your account has one, the contract term may be been renewed once more after any rate increases.

If you can't eliminate the cancellation fee, you may be able to minimize it by riding out the remainder of your term. $500 is a pretty hefty cancellation fee. Depending on your statement fee and minimum, it may be cheaper to leave the account open and dormant and cancel it at the end of the term.

If you do choose to go this route, remember the auto-renewal that I mentioned earlier. Some contracts will auto-renew in as little as thirty days. Make sure that you don't miss your window.

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On July 24, 2009 April said:

You seem very knowledgable on merchant processing, so please help me if you can. I changed merchant processing companies July 1, 2009 because they offered a better rate and everything I had before with the addition of being able to accept debit cards. You don't find out until the bank approves you that you have only been approved for swiped credit cards with a max ticket of $2,000, max month of $6,300. I have two companies who pay approved repairs by credit card by phone. My business fluctuates and it is hard to say what our max ticket would be as we have had them be over $5,000. Right now I have a little over $2,000 in pending funds because it is over my high ticket amount. The credit card processing company is telling me I probably won't get approved for tickets more than $2,000 based on my last three months of bank statements. My bank account also fluctuates and we had a bad month in April. I want to go back to my old processing company which is a pretty easy process, but is there any way to get out of the $295 early termination fee since it is less than thirty days and they are not able to offer me the same service I had before. Also the sales rep that I signed up with was very uninformed, on his second week of the job and had to be on the phone constantly with the company sales department to answer my questions. I thought we had everything straightened out but when I look at the contract now I see Bankcard Sales Profile (BE ACCURATE). Which is very inaccurate by saying 100% swiped. I wish I would have caught this. I was also not informed how the $2,000 high ticket would affect my business (I was told this was for informative purposes). Monthly average and monthly high were not even filled in on the application. I will pay the $295 early termination fee if have to as a learning experience but it would be nice not to.

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On July 29, 2009 Ben said:

Hi April,

I'm sorry to say, but it sounds like you may be stuck. What you need to do is thoroughly read through the entire merchant processing agreement, but before you do that, you must ensure you have the whole thing.

Merchant account applications are typically three to four pages long and the merchant processing agreement that outlines the legal end of the relationship may be as long as thirty or so pages. Make sure that you've received this from the sales representative that signed your account. If you didn't receive this agreement, that's grounds for terminating the account without paying the cancellation fee.

If you did get the processing agreement, go through all of the fine print. Sometimes there are a few "out clauses" that allow you to end the agreement prior to 30-days without paying the cancellation fee.

Also, take a look at the section of our merchant account guide that's dedicated to declaring the correct processing percentages, average tickets and monthly volumes.

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On July 29, 2009 Adam said:

Great site! Thank you for the wonderful resource.

I have a question about contract terms and cancellation fees for you.

I've noticed on RipOffReport and other similar sites, that the reviewers sometimes are blindsided by a cancellation fee (usually $300), that the MSP supposedly never disclosed. I've contact a few of those MSP's in reference, and they usually tell me that there is no cancellation for, or that there is a "Deconversion Fee" (usually $25) if I cancel early.

Can you tell me where these people are getting the $300 from?

Thanks for your time,
Adam

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On July 29, 2009 Ben said:

Hi Adam,

Merchant service providers, agents, ISOs and the various other levels of businesses that you may deal with when looking for a merchant account can all have different rates, fees and contract details such as a cancellation fee. I've seen cancellation fees range from $0 up to $500. Some are even pro-rated depending on how quickly a merchant cancels their account.

As far as sales people not informing a merchant about a cancellation fee, or worse yet misleading them, this is an unfortunate situation that sometimes happens. There's a lot of turnover among sales people in the bankcard industry and many so-called sales professionals aren't all that well informed themselves. Whether they neglect to inform a merchant about a cancellation fee out of ignorance or they're being misleading would have to be judged on a per-case basis.

We're trying to grow a service at CardFellow.com so there's a neutral third-party that merchants like you can turn to for assistance in monitoring rates, fees and contract details that are quoted. With this being such a new concept, the idea is catching on slowly but surely.

The best advice for all merchant account information, not just cancellation fees, is to read the merchant service agreement that you receive from your sales person thoroughly. Take what they tell you with a grain of salt and get everything in writing.