Merchant account holds are simply a defensive response to a potential fraudulent situation. Unfortunately, there are merchants who open merchant accounts with the intention of victimizing cardholders. Merchant account processors must monitor their merchants’ credit card processing activity for any unusual activity. If suspicious transactions are noted, the account is flagged and the merchant account will be placed on hold for investigation. A merchant account can be terminated automatically if illegal activity is suspected.
Honest merchants can find themselves caught up in the merchant account hold process with heavy financial implications. Merchant account funds are frozen and the ability to process future credit or debit cards is taken away. Once a merchant account is placed on hold, the best thing to do is communicate with your merchant account provider. Find out exactly why the account was placed on hold and explain your situation. Many times, account hold investigations cannot be expedited until all the proper steps have been taken. The best course of action against merchant account holds is to prevent them. Take note of common merchant account “red flags.”
Too Many Chargebacks
The number one reason for merchant account holds and termination is excessive chargebacks. It does not matter if the chargeback dispute was won or lost; it still counts against the merchant. Avoid merchant account holds by keeping chargebacks to a minimum. Ask your merchant account provider what percentage of chargebacks is allowed and be conscious of the amount your business is receiving. Reducing chargebacks starts with a good prevention program that includes customer communication and documentation.
Going Over Merchant Account Declarations
When business owners enter into a merchant services agreement, they give an average ticket amount and monthly processing volume declaration. The banks treat this declaration very seriously. Processing transactions that go over and beyond stated declarations will land that merchant account on hold. For example, if you own a music store selling CD’s for $12 each, and your average ticket amount is $24, then suddenly you sell an autographed CD for $500; chances are the bank will find this alarming. Or, if you typically have around $10,000 in credit card sales per month, but due to a successful anniversary sale you process over $50,000, a red flag will be triggered on your account.
To avoid any merchant account misunderstandings, communicate any business changes before they occur. Prior to adding any new, high-ticket items to your store, inform your processor. Let your provider know of special sales or events that will have you processing above your stated monthly declaration. Prior communication can give your processor time to make adjustments to your account reflecting your current processing trends. If you find yourself with a large transaction, contact your processing bank’s risk department, before attempting to run the transaction.
Processing for Another Business
Using your merchant account to process credit cards for another business is a big no-no and will get your merchant account placed on hold, or on the terminated merchant file (TMF).
Excessive Keyed-in Transactions on a Card Present Merchant Account
Merchant accounts set up to process mostly “swiped,” or card present transactions that have an excessive number of transactions keyed into the point of sale device, will be flagged. If you are having problems with your point of sale device, contact your processor and let them know of any difficulties. If you decide to start selling your products online, in addition to your brick and mortar location, open a separate card-not-present account.
Communication with your merchant services processor is the best defense against merchant account holds and termination. Ask your processor about chargeback prevention and allowable chargeback rates. Inform your processor before any changes occur to your business. Update increases in average ticket amounts and monthly processing volumes periodically, as your business grows. Lastly, open multiple accounts for card present and card-not-present transactions.