What to Look For in Your Credit Card Processing Service Agreement

What is a credit card agreement?

A credit card agreement is a contract that details the fees, rates and other provisions a business is subject to when it signs up for and uses a credit card processing service. Often, the contract includes elements like the application, the terms of service and the program guide. It also includes the terms that a company might most strongly object to, though these are often hidden deep in the text or are not adequately detailed by the credit card processor’s sales agents — or, in some cases, both.

What is included in a credit card processing agreement?

Some of the most important items you might see in a credit card processing agreement are often hidden among more obvious provisions, including how to close your account and how you’re penalized if you do so before the end of your term. These less obvious credit card agreement components include the following:

• Withheld funds
• Withdrawn funds
• Length of commitment
• Termination fees
• Equipment fees
• Rate structure

We’ll explain these items in depth in the following sections, advise you on what to do when you encounter these inclusions and explain how you can make a contract with unfavorable inclusions work better for your company.

What to be aware of in your credit card agreement

Phillip Parker, a credit card services provider expert and founder of CardPaymentOptions.com, says it is critical to have a full understanding of any credit card processing service contract you are signing and to always read the fine print.

“Salespeople rarely disclose all of the fees and terms of service verbally and are not required to do so under the law,” Parker told Business News Daily. “It’s important to read the fine print so as to make sure you know what you are getting yourself into.”

One of the most important reasons to carefully read the contract is to get a clear understanding of the processing fees you will be paying. Melanie Stout, a partner with Paul Larsen Consulting, said there are two primary pricing structures: bundled pricing and interchange plus, which is also known as interchange passthrough.

Stout said bundled pricing terms typically consist of a fixed transactional fee plus basis points on the amount of the transaction, while interchange passthrough fee structures are more transparent and include a breakout of the fees that the card brands charge and separate fees to the processor.

“In these scenarios, processors may charge transactional fees, basis points on the deposits or a combination of the two,” Stout said. “In addition to the straight processing costs, acquirers will often levy fees for additional services, including but not limited to chargebacks, reporting, ACH deposits, account updater (for recurring or card-on-file merchants) and more.” 

Parker said there are several clauses in a credit card processing services contract that your provider might not be so quick to share with you.

• Withholding funds: Merchant services providers can withhold funding on a business’s transactions and establish cash reserves — cash deposits used to cover potential losses due to fraud or customer chargebacks — without prior notice.
• Withdrawing funds: When your business grants a provider access to electronically deposited funds from your credit card sales into your checking account, you are also giving it access to withdraw funds without prior notice. Withdrawals can include funds for cash reserves, fees owed and penalties.
• Early termination: Most merchant account contracts lock merchants into a service agreement of one to five years. These contracts include early termination fees that usually range from $100 to $500 but, in some cases, obligate the merchant to pay any fees that would have been assessed throughout the remainder of the contract, which may add up to thousands of dollars.
• Equipment: While the provider will encourage leasing options, the cost of buying equipment is often one-tenth the cost of leasing it. In addition, most equipment leases (mobile card readers, countertop terminals, point-of-sale software and terminals, etc.), which are separate from the merchant account contract, have noncancelable terms of up to five years. In such cases, you must choose between paying a large lump sum to get out of the lease or continuing to pay the monthly fee until it expires.
• No interchange plus: Some providers will not offer interchange-plus rates, a much less expensive alternative to bundled pricing. It’s wise to inquire about interchange-plus pricing when setting up a merchant account.
• Has to be in writing: Many merchant account contracts state the provider will not honor anything an agent promises regarding pricing or contract provisions that are not actually in the contract, even if it’s apparent that the agent intentionally misled the business owner or omitted important details.

The length of a payment processing contract is also something businesses need to be aware of when signing a contract, according to Stout.

“When evaluating a contract, determine whether the length of commitment is appropriate for your business and the price being offered,” she said.

Parker said that to protect themselves from being caught off guard by unknown fees, small business owners need to find a credit card service provider they can trust.

“Research the provider [with] which you are considering doing business,” Parker said. “If the company has unfavorable contract provisions or business practices, other merchants will have filed public complaints.”

In addition, he said, there are some keywords that business owners should be looking out for in any credit card service contract they sign.

“Watch out for any provisions that state you must pay ‘damages,’ ‘liquidated damages,’ or any language that obligates you to pay a fee or another undefined amount for canceling service prior to the contract’s expiration,” Parker said. “You could be in for a nasty surprise if you need to cancel your service early.”

How to review the credit card agreement

Reviewing your credit card agreement thoroughly is key to avoiding potential pitfalls and ensuring you understand the terms. Here are some key steps to help you navigate this process effectively.

Get it in writing

If there is something you don’t understand in a contract, it is important to get answers. Parker encourages businesses to always get those answers in writing.

“I recommend communicating all questions over email so that you have a record of what is explained to you,” he said. “This can greatly improve your chances of getting disagreements resolved quickly.” 

Get a second opinion

Stout said most credit card processing companies have experts on hand for you to talk to, but some businesses feel more comfortable getting someone from outside the processing service to take a look.

“If a merchant would prefer to get an unbiased opinion, there are consultants who specialize in payments,” she said. “In looking for a consultant for this, be sure that he or she is not getting a kickback from the processor. Consultants who only represent their merchant clients will typically be more objective in evaluating agreements, negotiating lower fees and helping ensure a successful processing partnership.”

Negotiate

If you see something in the contract you don’t like, there is usually room for negotiation. Stout said most providers will begin with a rack rate and terms that are strongly to their benefit. However, those should always be viewed as a starting point for negotiations. 

“All aspects of the agreement should be considered negotiable,” Stout said. “Merchants should first determine on which areas they are willing to concede in order to get better pricing or terms in another area.”

Know when to leave

In the end, Parker said, if the contract you are proposed rubs you the wrong way, you shouldn’t hesitate to search for another provider.

“If it seems like things were being intentionally omitted during verbal discussions in hopes that you will just sign the agreement without reading it, or the fees or terms seem excessive, then it’s probably best to look elsewhere,” Parker said.

The best credit card processing services

When choosing a credit card processing service, even among top-tier providers, it’s important to perform due diligence and thoroughly review the agreement before committing. Each provider comes with its own set of terms and conditions, which can significantly impact your business. Here’s an overview of some of the best credit card processors and what you might find in their agreements.

Clover

Clover offers a robust system for businesses of all sizes and is known for its ease of use and completely customizable features, including customized reports. Some features include using different apps, management tools, consistent rates and promoting deals or promos. Clover offers interest-free installment plans, but details can vary, so understanding the specific conditions in your agreement is essential.

Read our Clover credit card processing review here to find out about its POS Hardware.

Merchant One

Merchant One provides a quick three-setup process for six different industries: retail, restaurants, hospitality, B2B, e-commerce, and trade shows and events. Its features include a virtual terminal, the ability to pair with phones, receiving your own account manager, and customer and sales insights. You can receive a quote to get an estimate on how much Merchant One is for your business via phone or website. Its initial agreements include a three-year contract and early termination fees.

Read our Merchant One review to learn more.

Stax

Stax is popular for its subscription-based pricing model, which includes no hidden fees and a zero percent markup processing. Stax prides itself on transparency, but verifying all terms yourself ensures there are no surprises down the line. Stax offers optional add-ons, starting at $99 per month and in-house customer and technical support.

Read our Stax review to learn more.

Square

Square has simplicity with no long-term contract policy, making it ideal for small businesses. Square has one integration system, so it’s all in one place. Some features include customer support, hardware with no leases or return fees, and money transfers on the same day or up to two days. While Square only lists processing fees, it’s important to review the agreement for transaction fees and any additional service charges.

Read our Square credit card processing review to learn more. 

Helcim

Helcim has transparent pricing, no contracts or monthly fees, and low rates. Businesses can use the processor in-person, online or over the phone with different payment methods. There are no cancellation fees, PCI fees, user fees, deposit fees or setup fees.

Read our full review of Helcim to learn more.

The importance of reviewing credit card processing agreements

In today’s business landscape, accepting mobile card payments is essential, as evidenced by the significant consumer preference for these payment methods. However, navigating the complexities of credit card processing agreements is important to avoid hidden costs and unfavorable terms. Remember, a well-informed approach to selecting a credit card processor can protect your business from unexpected expenses and ensure a smoother, cost-effective payment processing experience.