Allowing Others to Use Your Merchant Account

Monday, February 11, 2008

We all have friends that ask us for favors and to help them out in a pinch. After all, what are friends for? But sometimes you just have to say "No", especially if they are asking to use your Merchant Account. Allowing someone else to use your Merchant Account is called Factoring and is against Card Association rules (Visa, MasterCard, Amex, Discover). Factoring could lead to cancellation of your Merchant Account and/or hefty fines from the Card Associations.





You might be asking yourself why letting someone else process an occasional transaction through your account is considered such a no no. After all, who gets hurt? The short answer is…YOU!

The issue that arises when you process on behalf of someone else is that your credit card processor assumes the transaction fits your particular risk profile as determined by your SIC code, the underwriting that was performed when you applied for the account, and the ongoing monitoring of your account. Lets say your friend is selling products or services that are inherently more risky than yours. It is likely then that those transactions will experience a higher rate of fraud and chargebacks than you normally incur. This will raise all sorts of red flags at your processor and your account will almost certainly be suspended pending an investigation by the loss prevention department. If it is determined that you were factoring then your account will be closed and you will be placed on the Terminated Merchant File (TMF/MATCH) list. Once on this list, it is nearly impossible to get another merchant account.

Excuses Not To Have a Merchant Account

When your friend asks to use your merchant account he/she will undoubtedly make use of one of the following excuses as a reason not to have a merchant account.

• "I don't make enough money to cover the cost"

A merchant account will typically cost about $25.00 per month for a very small merchant. That covers the monthly customer service fee and minimum processing fee. That works out to be only $0.83 per day, less that a cup of coffee! You might also want to point out to your friend that since they do not advertise that they accept credit cards, who knows how much business is lost to their competitors who do accept credit cards. The increase in business they will get from accepting credit cards will probably more than offset the costs.


• "I don’t have enough money to buy the equipment"

Retail merchants can buy used terminals for less than $100 or refurbished ones for less than $200. If they want a new terminal they can lease one for $10 to $15 per month depending on the make/model with nothing down on approved credit. They could also use a virtual terminal that is accessed via the Internet and requires no up-front investment. Internet merchants can get payment gateways that have no setup fees and cost between $15 and $25 per month for unlimited transactions.


• "My credit is bad"

Generally, as long they are in the United States, don’t have a recent bankruptcy filing, are applying for less than $25,000 a month in credit card processing volume, and not selling any high risk items, their personal credit history should not affect their ability to open a merchant account.


• "My business is seasonal"

Most merchant account providers offer seasonal merchant accounts that are turned on during the months of the year that you choose and turned off during the rest of the year. When the account is turned off no fees are charged to the merchant during those months.

Encourage Your Friends

Don’t let your friends take advantage of you and put your merchant account in jeopardy! Encourage them to invest a little money in their business and open their own merchant account if they want to accept credit or debit cards as a form of payment. Ask them to contact an ISO or agent and open an account today!

We certainly hope this podcast has been of benefit to you. Look for this article in an upcoming issue of "Pingzine" Magazine.

Please call Loud Commerce at 800-931-9835 or contact them and let us create a customized payment processing solution for you including a free no-obligation quote and cost savings analysis.

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