Merchant Account Mistakes - How to Keep your Account in Good Standing

Stories abound of credit card processors closing merchant accounts and freezing funds. Most of these stories portray the processor as the evil villain out to steal from the small business owner. While this interpretation makes for an interesting plot, it's far from accurate.

Credit card processors have a responsibility to protect card holders and merchants by combating fraud. The first signs of fraud often come in the form of unusual merchant account activity. When a processor detects unusual activity they often won't ask merchant account questions, they'll simply close the account and freeze all funds if the situation warrants it.

With this type of shoot first apologize later action plan, there are bound to be innocent casualties in the form of merchants that unwittingly do something that gets their account shut down.

The rest of this article explains the primary activities that will cause a processor to close a merchant account and what innocent businesses can do to avoid having this happen to them.

Any type of unusual processing activity
Unusual processing activity is the primary reason why processors close merchant accounts. Unfortunately, the definition of unusual activity is open to interpretation. Generally, common sense and a willingness to error on the side of caution is the answer to avoiding having your merchant account closed for unusual activity.

Too many chargebacks – won or lost
Regardless of whether a chargeback is won or lost, too many in a relatively short period of time will cause a processor to close a merchant account. It is important to take steps to limit the number of chargebacks that you receive and to correct any issues that have lead to chargebacks in the past.

Selling products or service other than those declared on the merchant service agreement If a processor discovers that you are selling products or services that are substantially different than those indicated on your merchant service agreement, your account will likely be terminated.

Processing transactions for other people or businesses
Merchant account factoring occurs when someone uses their merchant account to process transactions for another individual or business. If a processor discovers that a merchant account is being used for factoring, the account will be closed and the owner may be subject to fines or even criminal charges. You should never use your merchant account to process transactions for another person or business.

Unusually high average ticket
Processing a single transactions that is much larger than average can lead to your merchant account being closed and your funds being held. When you opened your merchant account you declared an average ticket size. Processors remember this number and they'll shut your account down if you process transactions far in excess of this amount.

Unusually high processing volume
Similar to excessively large tickets, if you process too much volume in a monthly period a processor can close your account and hold your funds. Processors will expect you to process amounts that are consistent with what you stated on your merchant account application. Anything far above this number will cause them to close your account. An exception to this rule is seasonal swings that can explain higher volume. For example, a retail store will be expected to process larger volumes around the holiday.

Unfortunately, processors close merchant account every day because the owner of the account made an innocent mistake. The problem is that it's tough for processors to determine who is truly innocent and who has ulterior motives. Taking steps to avoid the reasons above is a very good start to keeping your merchant account in good standing.

If you've had your merchant account closed because of an innocent mistake, you can consider it a learning experience and open an account with a new processor.

If you've had your account closed and your funds held or you've been listed on the MATCH file, it's not that easy. In this case the help of a legal professional may be required to rectify the situation.

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