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Tailored Pay: Learn How High-Risk Merchant Accounts Operate

Suppose your company has difficulty obtaining a regular merchant account and is labeled high risk. In that case, you will have fewer suppliers to choose from and will be subjected to increased card processing costs as a result, but still, there are high-risk account providers like Tailored Pay that can help with your business. 

High-Risk Merchant Account: What a High-Risk Merchant Account is and How to Avail for One

A payment processing service for businesses that banks consider to be riskier than the standard accounts because of the volume of chargebacks, financial instability, fraud history, poor credit rating, or other type factors is known as “high-risk merchant accounts.”

Due to the risk above concerns, high-risk firms are typically forced to pay higher fees and undergo further inspection to get merchant services.

Suppose a high-risk firm’s history reveals a high number of refunds and chargebacks, then, in this case, a merchant bank may place a rolling reserve – the amount of money set aside to cover the likelihood of a chargeback – on account of that business.

Is a High-Risk Merchant Account Required?

When you apply for a merchant account, the bank or financial institution that will deal with you and provide you with a reserve will evaluate your business in terms of risk.

Numerous industries, including charity, travel and tourism, tattoo shops, adult entertainment, insurance, and affiliate marketing, may be classified as ‘high-risk firms.’

If you operate in a ‘high risk’ industry (which we identify at the conclusion of this piece) or have previously been refused by a bank, a high-risk merchant account will permit you to conduct business.

How Are High-Risk Businesses Determined?

When determining the risk associated with working with a high-risk merchant, a financial provider will consider both the firm and the industry in which it operates.

For the enterprise as a whole, high-risk elements include the following:

  • How long is the company in operation — the younger the company, the risk is considered higher
  • How is the company’s financial stability?
  • The creditworthiness of the directors and the owners will possibly be offset when personal guarantees are involved.
  • The revenue stream — subscriptions vs. pay-on-delivery — and the period between payment and product/service delivery.

The sector or vertical of the firm is likely to be analyzed using the following methods:

  • Credit Risk: Industries with a lag between payment and delivery are riskier. That is because if the firm fails to fulfill the request, the buyer accepts liability. Airlines, tour operators, and drop shippers all fall under this category of ‘high-risk’ businesses.
  • Regulatory Risk: Certain industries are highly regulated and are prone to significant changes. This unpredictability erodes long-term business models’ stability, increasing the associated risk. Additionally, there are other laws to violate (knowingly or unknowingly), which carries repercussions.
  • Reputational Risk: Banks place a premium on their reputation, and any activity that jeopardizes it is labeled high-risk, facilitating legal but frowned-upon transactions.

If your firm is classified as ‘high risk’ in any aforementioned ways, a traditional bank will likely decline your account application. However, this is where a high-risk merchant account may be beneficial.

Applying and Getting Approved with a High-Risk Merchant Account

If you are planning to apply for a high-risk merchant account online, the process is quick and easy as there are providers like Tailored Pay that you can contact and will surely assist you in what is right for your business.

When the acquiring bank authorizes your firm for the account for the first time, you must provide the following papers to apply for a high-risk merchant account formally:

  • Certificate of incorporation
  • A recent bank statement with the company’s name and account details – account number, IBAN, etc.
  • A scanned copy of the owner’s/legitimate director’s photo identification.
  • Organizational structure chart
  • Shareholders’ certificate
  • For businesses required to get a license, provide the license number and the agency’s name that issued the permit.
  • A six-month history of processing, such as total processing volume, number of transactions, chargebacks, among others.

Additionally, you should ensure that the website for your organization complies with the following requirements:

  • Display the legal name of the business
  • Publish a policy on refunds and returns
  • Include contact information for customer service and/or assistance.
  • Compile a list of all product delivery methods and times.
  • It is protected by an SSL certificate and makes use of HTTPS

Each merchant account application method varies according to the supplier chosen; however, the procedures listed above are required for each business applying for an account.

How Can I Boost My Chances of Acceptance For A High-Risk Account?

Below are some tips that you can do in order to help you boost your application and improve your chances of success when applying for a high-risk merchant account.

#1 – Maintain accurate records of your transactions.

Keeping your accounts updated can assist you in demonstrating your current financial condition.

#2 – Enhance your favorable credit rating

While high-risk merchant accounts are designed for those with a low credit history, it is still advisable to improve your credit rating before applying. This might involve avoiding late payments and resolving any outstanding problems.

#3 – Ascertain that your terms and conditions are entirely compliant

Assuring that your terms and conditions are entirely compliant that you are operating within the legal framework of regulatory norms and constraints will assist providers in determining that you will not cause problems down the road.

#4 – If you use a third-party fulfillment service, ensure that your contract covers you.

Utilizing third-party fulfillment increases your company’s risk associated with purchases and returns, so see to it that your contract with them protects you in the event of a dispute.

#5 – Collect a variety of quotes and conduct your investigation

Obtaining a variety of quotations can enable you to negotiate more effectively in any business issue. By contacting many providers and reading customer evaluations, you can ensure that you are entirely educated and obtain the best high-risk merchant account for your needs.

#6 – Chargebacks should be kept to a minimum

Demonstrating your ability to limit chargebacks increases your chances of acceptance. This may be accomplished using fraud filters, appropriately formatted statement descriptions, and a simple refund procedure.

#7 – Consider merchant accounts located offshore

Expanding your pool of possible suppliers will boost your chances of acceptance and may also result in more favorable conditions.

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