When you’re operating an eCommerce business, you want to make sure that things go smoothly. Part of the process involves getting a good high risk payment processing service provider. But when your business is labeled as being high-risk, it can feel quite daunting to operate. Needless to say, you shouldn’t worry about falling in the high-risk category since the most that can happen is that the processor will decline your application.
In other cases, they may decide to reduce the apparent risk by setting up certain measures. How a payment processor like Pay. cc may decide to reduce the risk differs between regular and high-risk merchant accounts.
What Makes a Business High-Risk?
That being said, it’s important to consider what makes a business high-risk in the first place. There are certain industries that payment processing service providers regard entirely as high-risk. These include credit repair, CBD, and multilevel marketing companies.
Other than that, you can be categorized as high-risk if a large chunk of your customer base belongs overseas. That’s because it’s complicated to navigate the economic dynamics of foreign countries. Similarly, if your product line is prone to extensive regulations or government legislation, you may be regarded as high-risk. And if you have low credit scores or have defaulted on loans, there’s a higher perception of risk.
Be Prepared For a Longer Application Process
One of the first things you can expect as a high-risk business is a longer application process. The service provider may ask for various details about your business to create a risk profile. They’ll also evaluate previous patterns of finances. This means they’ll check your business’s previous partnerships, processing history, and personal credit history so they’ll know whether or not to watch out for bad credit.
There Are Higher Payment Processing Fees
If you’re running a standard small business, you can expect to pay a processing fee that’s about 0.3 percent higher than the interchange rate. In contrast, having a high-risk merchant account means that this could increase up to 1.5 percent, in addition to the interchange rate. Although the interchange can vary between credit card payment processors like Pay.cc, a higher risk generally means that you’ll be paying more in fees.
There May Be Cash Reserve Requirements
There are some credit card payment processing services that may hedge a specific amount of cash for high-risk businesses. It’s up to them how they maintain a threshold for a reserve like this:
- They could keep a rolling reserve. This means that they’ll set aside a bit of every transaction you process (you will receive this later). This chunk can be as high as 10 percent. Let’s say you have a six-month rolling reserve agreement; you’ll get the balance from January to July.
- They could keep a capped reserve as well. This means they’ll keep a certain percentage of each transaction you process until the reserve reaches a specific level. Once it does, they’ll stop taking a percentage of every transaction, but they’ll still keep your reserve.
- Lastly, they can ask for an upfront reserve. This means they’ll ask you for a set amount upfront. If the merchant fails to do this, the processor will withhold all transactions until the said amount is paid.
Greater Chargeback Fees
As an online business, you’re bound to face returns from unsatisfied companies. In this situation, you’ll need to process a refund. In this situation, you also have to pay the payment processor a chargeback fee. If your business has a higher chargeback ratio, these fees will be higher to reduce the risk of a large volume of chargebacks. As a result, businesses that have high chargeback ratios, such as clothing brands, could face the brunt of this policy.
Caps On Volume
In some cases, a credit card payment processing service provider like Pay.cc may put a cap on the number of transactions you can process. They’ll inform you about this sales volume beforehand, and how long it’s for, and once you reach the limit, you can’t process any more until the next day, week, or period of time.
What To Do As a High-Risk Business
As a high-risk merchant, there are a few things you should consider. For starters, you should keep a healthy cash level in your business account. It shows that your business has financial stability and, therefore, reduces the perception of risk surrounding your business.
Additionally, you should do your best to reduce the number of chargebacks. In eCommerce, these usually occur when the actual product is very different from the description or when it takes too long for your product to deliver. You should also have your documents ready, which means six months of bank statements and a couple of years of tax returns. And if your credit card payment processor has any recommendations, you should follow them.