Sample Contract Language to Avoid
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Application vs. Terms and Conditions
Working with merchants every day, we receive lots of feedback regarding our educational sales approach. Recent stories from the field bring to light new warnings we need to share with you. Vantage has been warning merchants to avoid long-term contracts and merchant contracts with cancellation fees. However, be careful if you hear sales people telling you in proposals and verbally that they will waive the contract cancellation fee or waive the three year contract term! They may even line through hard -coded fees on their merchant "application". So are these companies finally coming around? Unfortunately not.
Here is the problem with this “waiving” phenomenon.
1. Reps are waiving processing terms and fees on the merchant application, not on the actual legal agreement. In fact, pay close attention to see if you are actually reading the legal agreement at all. You may just be looking at a “Highlights of Terms and Conditions" not the actual Merchant Processing Agreement. These highlights "look" legal but be careful.
2. When examining the fine print of the full legal merchant agreement, in addition to looking for contract term and cancellation fee notices, you will want to find key language like: “amendments” – no provision of this agreement may be waived, amended, or modified except in writing signed by an officer. Sales reps do not have the authority to waive contract terms.
By signing most applications, you are agreeing to terms you have not seen. Simply processing a single transaction can also obligate you to terms you may not know exist. Just know this, MasterCard and Visa have Terms and Conditions and you can't accept cards without agreeing to them, so please avoid those who try to hide the contract terms from you.
We are on a crusade to inform and educate merchants and to save them from making costly mistakes. Don't be blinded by “acquisition style pricing” to the point you forget about the difference between the application and terms. Be cautious when you spot "say anything, do anything" salesmanship.
When you spot questionable merchant acquisition business models in your market, sound the horns and warn your neighbors and friends.
Read your contract carefully! Unfortunately, we have seen so many instances where a sales person says one thing but the contract says another. Contributing factors for the misinformation prevalent from most reps you meet is a result of high turnover due to the competitive nature of the industry, lack of proper extensive training and the complexities of the payment business. We also have seen where the proposal says one thing but the contract says a whole lot more. This is especially true when it comes to hiding fees. Pay close attention and look for the following fees:
» Annual Fees- A hard-to-spot fee, you will only see it once a year so if you don't look closely at your merchant statements every month, this one slides by.
In addition to fees, you must watch for contract language that may have an even bigger negative impact on your bottom line. The one, two punch is the three-year contract with an early termination fee. In this style contract, it will make little difference what rates and fees are quoted upfront. This business model breeds a "say anything" sales approach to win your business.
It is your contract that will have the last word. We encourage you to print and read our processing agreement. We will be happy to answer any questions. Compare the fine print and see the difference.
Having consulted with thousands of merchants, the question we are most frequently asked is "What’s your rate?" Ever wonder how this question became the starting point for all negotiations?
Obviously, rate is an important component, but what we have found is that merchants have actually been taught to ask this question by sales reps. Inexperienced and untrained sales reps rarely do more than sell on rate, using rate as the chief motivating factor to get merchants to sign contracts.
If you ask for rates, savvy marketers will only be too happy to entice you with below-market gimmick rates designed to lure your business into a contractual obligation. These contracts may be long-term equipment terminal leases or multi-year processing agreements with stiff early-termination fees.
Having more knowledge about what determines your rate and the fees that impact your bottom line cost will help you make an informed decision when selecting a credit card processing provider. Understanding the importance of price structure and having a company that can help you manage your interchange qualification are very important.
We trust that the topics in this price section will lead you to better vendor relations. Keep reading or contact a Vantage for a personal consultation.
The number one reason not to lease bankcard equipment is that you are upside down before you sign the personal guarantee. For example: a $39 lease for 48 months will cost over $1,800. Within months the terminal equipment rapidly depreciates to the used equipment prices of around $300 or less, but you still owe $1,700.
Equipment leasing has been around as long as the terminal equipment itself. The leasing companies who collect the payments and finance the systems fund the equipment sales agent. Many processing companies today are still more into the equipment leasing business than they are in the merchant card processing and service business. They use gimmick rates to sell high-priced leases to unsuspecting merchants.
A lease is simply a financial instrument. The leasing company is a finance company and is not responsible for maintenance, warranty, repair, upgrade, or service. They are only concerned with collecting your monthly payment. Most leases automatically renew and contain a buyout clause at the end of the term that must be acted upon to end the agreement. Watch out for a fair market buyout clause. Fair market is vague, but even if it is capped at 15% of the original lease, in four years you may end up paying as much as the equipment cost today. Some key features presented when selling leases are spreading payments over time and the tax advantages. Monthly equipment rentals provide tax advantages equal to that of leasing, but without a personal guarantee contract.
Be aware of early termination and cancellation fees that are common in today's merchant contract.
Bankcard pricing is complex and difficult to teach. To solve this problem, many corporate offices hand down "rate grids" to sales reps. A grid simplifies quoting rates to merchants for proposals. Move your finger down one side of the grid for sales volume and another finger across the top for the average ticket to meet on the quoted rate. Sounds simple enough.
In a competitive market, using a grid creates a common problem with sales people on commission or quotas. Needing a better rate to win the bid is as simple as rounding up. While this new rate quote sounds too good to pass up, be careful. If your ticket size and sales volume do not meet the qualifications / projections on which your rate quote was based, a few months down the road your rate and fees will be increased.
Next add the "hidden" cancellation fee. Coded into the contract fine print is a fee that basically says: if you are unhappy enough with your service or pricing to cancel, you must pay for the privilege to do so. The cancellation fee becomes a deterrent to further change, your bottom line cost is now higher than the other proposals you originally reviewed, and you now rely on a customer-no-service call center.
Introductory pricing schemes also go hand in hand with cancellation fees. Introductory rates are used to entice unsuspecting merchants. The few months of losses incurred by the processing company are budgeted as acquisition cost knowing that losing rates will be evaluated under the terms of the contract and adjusted to profitable levels.
The moral of this story: If it sounds too good to be true, look for cancellation fees.
What is acquisition pricing? It means taking a loss in the short term, using below-market pricing to acquire new merchant accounts; locking you into a contract today, and later raising rates or fees to make the account profitable using language hidden in the fine print of the contract.
Focus on your bottom line cost of service, not just your rate. Rates can be deceiving because there are many different billing formats and fees charged that buy down your rate. Remember, all credit card processing companies operate from the exact same Interchange cost. Interchange is set by the card associations according to industry, card product acceptance, and method of acceptance.
Acquisition pricing is similar to the introductory offers and solicitations that arrive in your mail box by credit card issuing companies that promote a low annual percentage rate while the fine print explains that it will expire in a few months and that there will be a balance transfer fee. Introductory pricing schemes are only good if you are constantly playing the game of jumping from one company to the next. However, changing your credit card processing vendor regularly for your business is different because these acquisition offers are contractually loaded with three-year contract terms and expensive early termination fees.
If it is too good to be true, then it probably is. In today's economy, merchants are looking to cut costs and one area that looks promising on the surface are merchant fees. The sin of acquisition pricing models is not disclosing all of the details and quoting a single element of a complex rate that is purposely designed to look lower and grab your attention. This below market price is over simplified to aid untrained and inexperienced reps in selling.
if you get bids from several reputable companies and you take out all the companies selling equipment leases and all the companies with cancellation fees, the rest of them should be within a couple of hundred dollars a year. Commodity pricing means you make decisions on trust and service.
Vantage Card Services, Inc. delivers real value with low cost and personal service.
There are three primary cost factors to consider:
It is important to remember that the difference between rate and actual merchant cost can be significant especially with a pricing structure weighted toward fees. Unlike other industries, where sales volume drives price, in the credit card industry, the average transaction size drives the merchant pricing. The reason is there are more resources and therefore fees associated with processing transactions than there are for simply maintaining a merchant account.
"We are the biggest" seems to be many companies number one claim when selling merchant services. The implied benefit is that they have better cost to pass along. But now that you understand what factors drive price, you can see through this marketing hype.
"I am the bank" or "I am the processor" is another often used claim. Again, same price structures listed above, but often these organizations have higher fixed costs in overhead, salaries and fancy literature and greater pressure from their stockholders and board to increase stock price performance by increasing rates.
Work with Vantage and let us help you manage your Interchange qualifications and set your price structure to make the most of cost factors everyone must pass along to you if they are going to remain a viable company with quality service and support.
FoodService Resource Associates, LLC