Whatever size your business and whatever your familiarity with credit card processing is, it is just as important to understand what not to do as it is to understand what to do. Banks and underwriting departments are constantly scrutinizing any vulnerabilities in order to reduce the risk of fraud. A by-product of this is that any mistakes on your part could lead to funds being held for a long period of time, chargebacks, or even your merchant account being terminated. There are many common mistakes that merchants make which cause a huge amount of problems in relation to their merchant account. All of these things are avoidable and can help reduce your paperwork, make life easier for you as a merchant, and eliminate the risk of account closure. The following is a list of “do’s and don’ts” which will help you identify the correct procedure for credit card processing in your business.
Let’s begin with the “do’s”, things that you should always do when processing credit card payments to help your business run smoother and reduce fees and risk of closure.
• DO have coverage in your bank for processing fees. A common mistake made by merchants is to not have enough funds in their bank to cover processing fees. It can be easy to forget that fees will come out of your account to cover rates and fees for your credit card processing solution. If a merchant who is processing a bank fee or charge ever has it returned due to insufficient funds, the processing bank will become concerned about your account and may issue it a red flag. They will believe that if you as a merchant can’t cover the small fee for credit card processing that you won’t have the ability to cover the fee for larger amounts such as a chargeback.
• DO use your account as it is intended to be used. A merchant account should only be used to process credit card payment for your business. Only charge for items that you actually sell through your business and that are related to your industry. Maintain a fair pricing system for your industry. For example, a grocer wouldn’t have a charge of $5,000 for a single credit card payment as nobody purchases that many groceries in one go. Also, if you have set up your credit card processing in a brick and mortar establishment as a ‘card present’ system, refrain from keying in the majority of sales.
• DO inform your bank or provider of a drastic increase in sales. If you are holding a promotion or event in which you expect a large volume of sales to go through, let your bank or provider know about it in advance. If it is a legitimate reason such as a promotion or seasonal spike in sales there will be no issues. However, if it looks suspicious it is possible your merchant account will be red flagged.
With the “do’s” come the “don’ts” and these are just as important to adhere to. Avoiding these “don’ts” provides your business with a better chance of running smoothly and avoiding any administrational problems.
• DON’T round of large sales to even amounts. In many industries, larger sales which are all rounded off to even dollar amounts can trigger a red flag on your merchant account. This practice should be avoided unless the even dollar amounts are actually reflective of the sale. For example, if you have made a sale for $21,012.54, don’t round it off to $21,000. There are some industries such as charities where this doesn’t apply.
• DON’T attempt to recharge for a declined transaction. If a customer is making a purchase and their card is declined, do not attempt to recharge it numerous times for lesser amounts each time in the hope you will find an amount that is accepted. This is a serious red flag indicator as the bank will feel you are trying to trick the system. Even if you do get a transaction to go through by doing this, the transaction is technically invalid as it goes against the rules and you risk losing the money.
• DON’T charge your own cards. This is another big issue for banks. Never swipe or put through a transaction on your own credit card if you are a stakeholder or owner of a business. This is known as a ‘cash advance’ and is prohibited by the card association rules which Visa, MasterCard, Amex, and Discover are all members of. The reason this is prohibited is because a merchant account is designed to be used for purchases or services only. If you are caught swiping through your own card for a cash advance or extra air miles, your merchant account will be terminated immediately.
• DON’T charge a card for loans. If someone owes you money for a loan, whether personal or professional, do not accept the loan in the form of a credit card payment. Cards are designed to be used for legitimate purchases only and using a credit card to payback a loan is never accepted.
• DON’T charge the same card repeatedly. Continually charging the same card again and again is a definite red flag for banks who will want to investigate why numerous transactions were placed when one was necessary. Another reason to avoid this practice is that you will save on fees by only processing the credit card once.
• DON’T accept third party cards. When accepting a credit card payment, you should only do so when the name on the card matches that on the invoice. Only ever accept a credit card that has the customer’s name or their company’s name on it. Never accept a borrowed card that does not belong to them, even if it has a family name on it. If you do accept a credit card payment on a card that does not belong to a customer you risk a chargeback being initiated by the cardholder and will have no protection against it.