To protect your business, you need safety measures in place. With this comes the most crucial decision you will make when starting your business: whether to open a high-risk merchant account or not. You can open a high-risk merchant account by consulting a high-risk merchant service. The reason is as this account gets usually used for high-risk industries such as buying and selling goods in a digital market or using a currency broker, etc.
So, if you’re looking to open a high-risk merchant account, there are some factors that you should take into consideration before doing so. These factors could differ from one individual to another and also change depending on the type of business. These will also help you make an informed and correct decision about whether or not an account is too risky for your business. Let’s get started!
About High-Risk Merchant Account
A high-risk merchant account is a kind of account designed for businesses that handle high-value transactions, are subject to cancellation, and ask for chargebacks. They are typically offered only to merchants with a proven track record in terms of sales volume, customers, or some other metric that demonstrates their ability to meet the requirements of an issuing bank. Therefore, these accounts have higher protection costs and lower fee discounts than standard credit card processing.
Factors To Consider Before Opening A High-Risk Merchant Account
Any new business has risk involved. The company might go out of business shortly after opening, or it can be very successful and continue to grow over time. To minimize the risk, you should open a high-risk merchant account. This account requires a lot of trust and faith in the business. It allows you to receive payments in case your customers are unable or keep failing to pay you. It will help you and your business grow.
However, you must understand the risks associated with an open a high-risk merchant account and make sure they are worth the rewards. Doing so will help you determine whether it is worth it to open one. Some factors need to get considered when opening a high-risk merchant account. Let’s check them out:
- Your Risk Tolerance
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The amount of money you could afford to lose on any transaction significantly determines how much risk you’re willing to take on your business. Even though a merchant account provider can’t ensure you won’t lose money on a transaction, they can limit how much you can lose. If your company has already lost money once, it’s difficult for them to trust that it won’t happen again. Unfortunately, merchant accounts aren’t easily accessible; they come with fees and additional costs. The higher the charges, the lower your business’s risk tolerance and vice versa. So if you’re considering opening a merchant account, make sure it’s worth taking on all those extra costs!
- Your Business Needs
If you’re opening an online store selling designer clothing, the risk is higher than if your business sells office supplies. If you’re opening a business in another country, the risk of cancellation and chargebacks is higher than that of a company based in the US. The critical factor is understanding the cost of opening your business. You don’t want to open the wrong type of account or go for an unprofitable one just because it’s cheap, but you also need to know what risks will be involved in setting up your merchant account. So, all these factors will influence what type of account you should use when getting your first merchant account.
- Being Able To Accept Varying Payment Types
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Many payment options can benefit your business, but you must consider the associated risks. Let’s take a look at some of the most popular payment options.
- Credit Card Payment Method
Many credit card companies offer rewards programs and other incentives to encourage users to make purchases, which could be an excellent tool for driving sales. However, this comes with risk because you could pay a hefty penalty when using your credit card without making any purchases.
- Internet Banking
With Internet banking, you can set up automatic recurring payments for your business to make it easier for you and your customers to track their budgets. It also allows customers who purchase online from your website or mobile app to send payments directly into your account every month (or more frequently).
- Bill Payment Via Inbox (digital)
Using digital bills allows businesses to receive payments from their clients faster than ever before by eliminating paper delivery charges and processing fees. Digital bill payment through email has many benefits, including no fees for incoming mailings and having instant access to all past-due invoices.
- Protection From Chargebacks
A high-risk merchant account allows risky businesses to accept credit card transactions online. Chargebacks occur when customers dispute card charges, forcing the merchants to ask for their money back. They are one of the most significant expenses for companies that accept payments through credit cards. If the customer were to dispute the charges on their credit card and the chargeback is successful, the merchant would lose money and most likely be unable to get paid for those orders.
A high-risk merchant account can help protect a merchant from chargebacks because the merchant’s bank will ensure the risk via additional terms to their merchant account agreement. It helps to provide an extra layer of protection for merchants, and in our opinion, this is crucial protection, especially when dealing with sensitive transactions like credit cards.
- Cost Of Monitoring The Funds
The costs of monitoring your business, doing manual reviews, and reconciling your transaction records can quickly run you hundreds of dollars each month. The cost of monitoring funds will vary depending on your business type and the level of risk you’re carrying. For instance, if you’re handling a high-value item, it’s easy to get away with not having many people following the transactions. But with a relatively low-value item, some expenses are associated with monitoring funds. Many online business owners fail to ask enough questions when it comes time to open a merchant account. So, a comprehensive cost analysis is a secret to high-risk merchant accounts.
Before opening a high-risk merchant account, it is crucial to understand all the factors that go into making this decision. Many risks associated with opening a merchant account may not be worth taking on, so do your research and ensure that the risk is worth it for your business. Remember, if you open a high-risk merchant account, have a reliable financial institution as your backup plan if things don’t work out as planned.