It can be hard for high-risk businesses to find secure, fair and reputable merchant account providers. Even if a company can find a high risk payment gateway, it’s likely to come with undesirable terms and a higher rate. Here, readers can learn what a high-risk business is, why processors are reluctant to help them, and what to do to find a reliable processor.
An Explanation of High-Risk Merchant Status
Businesses are regarded as high-risk because of various factors, but most assessments are based on two conditions: the chance of financial failure and the industry itself. For example, a firearms dealer would fall into the first category. Other industries come with numerous chargebacks, which make them a financial risk. For a small business to be considered high risk, it has to have yearly processing revenue of less than $1.2 million. Many business owners are unaware of their risk until they look for a payment gateway, and they pay the price in the form of higher processing fees.
Why Processors Care
Because credit card processors are liable for all transactions going through a business, they are reluctant to work with companies that have numerous instances of fraud or chargebacks. Essentially, processors feel that these companies are more trouble than they’re worth.
Determining a Company’s Risk Level
As previously mentioned, various factors determine a business’ level of risk. For instance, new businesses, those with poor or no credit, and those in non-ideal industries will be regarded as high-risk. Examples include:
Hospitality and travel
Wellness and health
This isn’t a comprehensive list, and each payment processor has its own definition of what constitutes a high-risk business.
Processing Tips for High-Risk Sellers
For high-risk businesses, there’s good news and bad news. The good: It’s possible to find a payment gateway. The bad: Terms may not be as favorable as a business owner may like. Whatever the case may be, business owners can use the below tips for working with a processor.
It’s almost impossible to outsmart a processor by failing to disclose the type of services or products being sold. When the processor finds out—which they normally do—it can be costly and frustrating. It pays to be honest with the processor from the very beginning.
Have On-Hand Capital
One of the most effective ways to find a payment gateway is to prove that the business has sufficient capital. This can include equipment, buildings, tools, machines and inventory used to generate an income. When companies have these assets, processors are more likely to provide services because it indicates the business’ ability to absorb losses.
Disclose Processing History
If a business owner lacks capital, they may need to provide the company’s processing history. This gives the payment processor a glimpse into the company’s past, and it can help an owner prove that they have always followed regulations.
Learn About Reserves
Rolling reserves are where a portion of each day’s transactions are held and released on a set schedule. For instance, a 10% reserve may be held for 90 days. This means that 10% of money received on the first day is released on the 91st day.
Minimum reserves are an amount the seller has to keep at all times. These reserves are either taken as upfront amounts, or as a percentage that’s held until a certain threshold has been attained.
For some companies, a five to 10% reserve could be damaging. When business owners are aware of these reserves and other fees, they can ensure that they’re ready to handle them before choosing a payment gateway.
It can be difficult for companies without previous processing history, as these accounts are considered to be risky. Typically, these companies get expensive and restrictive terms in the beginning, but it’s possible to renegotiate reserves, rates and other terms after at least three months of history has been saved. Even if a company was previously turned down by a processor, a subsequent application can be approved if the owner provides at least three months of financial statements.
Make Payment Security a Top Priority
Payment processors that provide virtual terminals and payment gateways aren’t negotiable. It’s important for business owners to ensure that every online transaction is protected by an encrypted server, and they should follow the latest regulations from PCI-DSS (the Payment Card Industry Data Security Standards).
High Risk Payment Gateway: Find the Right High-Risk Processor
By following these tips and finding a payment gateway that works with various high-risk businesses, an owner can build a company’s reputation and trustworthiness. Additionally, these companies provide services that reduce fraud, chargebacks and other problems.