Merchant Account Cancellation
Merchant account cancellation fees, also known as early termination fees, are fees charged to a merchant who is ending their merchant account agreement early. Setting up a new merchant account costs merchant account providers money, called boarding charges. Cancellation fees help to recoup these new boarding costs, when an account is closed before its term. They also increase customer retention, and give providers a chance to rectify any problems. Fees vary, and are set by merchant account providers. They typically range anywhere from $0 to $500 fixed. Be aware of cancellation fees that are not fixed. This variable termination fee is based on how much a merchant processes (times remaining months left), and can end up costing thousands of dollars.
Here are a few ways to avoid (or lessen) merchant account cancellation fees.
Communicate with your Current Processor
The top reason merchants want to switch processors is because they found a better rate with a competitor. Comparing rates and fees can be an exhausting, timely task. Save yourself the time and energy, and speak with your current merchant account provider about pricing. Let them know that you are “shopping” around for better rates, and have them reevaluate your merchant account. Most processors do not want to lose their clients, and will lower pricing if they can. Remember, that pricing can never go below interchange. Current interchange rates are always posted on card association websites.
Be concerned when a merchant provider is advertising super low rates, much lower than other providers. They are probably displaying the rate for PIN-based debit transactions. These rates only apply to transactions where a PIN number is entered at the point-of-sale. Credit cards are charged at a higher rate. Another tricky pricing scheme to watch out for is a rock bottom qualified rate, with ridiculously high mid-qualified and non-qualified rates to make up for it. Talk with your current processor and let them know what pricing you are seeing out there.
Look at your Contract
If communicating with your current processor is not going to work, look at your merchant account agreement closely. Read every single line. Some contracts will have clauses waiving cancellation fees. For example, if fees increase during the contract term, termination fees are waived. Other contracts may excuse cancellation fees for businesses that go out of business. Credit card processors have varying cancellation fees, clauses, and terms. Read your contract carefully.
Negotiate
Sometimes you can have your merchant account cancellation fees waived, or reduced by negotiating with the processor. Especially when there is a working relationship with the provider, and the account is in good standing. For example, a business owner decides to sell her clothing store to a neighbor. If the new owner open up a merchant account with the current processor, most likely, early termination fees would be waived
Leave Account Stagnant
A merchant can simply choose not to use their existing merchant account to process, and open a new account for future credit or debit transactions. The “old” account stays open, but the merchant is not processing anything through it. This solution may prove to be less expensive than paying a hefty cancellation fee. For example, the cancellation fee on your existing account is $300. You have 3 months left on your contract, and your monthly minimum fee is $25, plus a $10 monthly statement fee. You would end up paying $105 (vs. $300) to leave it open.
Before opening a second account, ensure that you have contacted your current processor. Communicate your concerns. Most reputable processors will do everything in their power to keep your account.
Cancellation fees exist to improve customer retention and recoup any initial boarding costs incurred by the merchant account provider. Merchants who want to switch processors, but are facing an early termination fee, are encouraged to contact their current processor with any problems or concerns. Competitive pricing continues to be the main reason merchants want to close their account. Be aware of pricing schemes designed to lure customers. Before switching, ask your provider to reevaluate your account and let them know about comparable rates you have seen. Chances are, they will lower your rate and retain your business.
