This Week's Featured Newsletter Article:

"Merchant Banks can Lock Up Your Money for Months!"

by Chris Malta

Risk Management is a term you should get to know.

Let�s say that I work for a company called Global Sales. I have a really good idea that I think will boost Global Sales� profit by a huge amount. But, Global Sales is going to have to spend $20,000 first, to try this idea out.

My boss comes to me one day and says, �Chris, we�ll try your idea. We�ll spend the $20,000 and see if this works. If it works, we�ll give you a promotion and a big raise. However, because we�re taking such a big risk here, we�re going to hold back part of your regular paycheck for six months, to pay us back the $20,000 if your idea doesn�t work!�

Well, that seems extremely unfair to me. I shouldn�t have to guarantee Global Sales� investment in my idea with my own money, should I? But the boss doesn�t care about that. It�s either his way, or Global Sales won�t try my idea.

I�m very confident in my idea. If it works, and I think it will, I get a big raise and a promotion. I desperately want that for my career. If it doesn�t work, I lose money that I worked for and earned, to pay Global Sales back.

No, this situation wouldn�t happen to anyone in a regular job. But something similar can happen to you when you use a Merchant Account to collect credit card payments from your Internet customers!

If you�re just starting out in your Home-based Internet Business, you may not be too clear on exactly what a Merchant Account is. That�s OK; I�ll give you some background about that in a minute.

If you already have a Merchant Account, you may be surprised at what the fine print says. Most people don�t read it all the way through. It�s Fine Print�the reason it�s printed that way is that the companies who write it are hoping you won�t read it all!

Whether you�re experienced, or just starting out, there�s something you need to be very aware of. It�s possible for a Merchant Account Provider to freeze a (sometimes large!) portion of your money, and not give it to you for up to several months. That�s not good!

What Is a Merchant Account?:

For those who aren�t sure, let�s go over some quick background info on just what a Merchant Account is.

If you�re going to sell products on the Internet, you need to be able to collect your customers� money, right? The best way to do this is by directly accepting their Credit Cards. It makes your business look much more professional, and makes the process faster and easier for your customers. Home Ecommerce Businesses that directly accept credit cards are more successful than those that don�t.

No matter how you plan to collect your customers� money, though, you need to start by opening a basic Business Bank Account. That�s a simple thing to get, and you do need it. You can find more FREE information on that, and other things mentioned in this article, in our Resource Center at www.WorldwideBrands.com.

Once you have your basic Business Bank Account, you can then get set up to accept your customers� credit cards, by opening something called a Merchant Account. Companies that provide Merchant Accounts are called, coincidentally enough, Merchant Account Providers. Again, more free info about this is on my site. I�m just giving you some background information here, in case you don�t know this already.

Here�s how the combination of a Business Bank Account and a Merchant Account allows you to accept your customers� credit cards:

   1. Your customer places an order on your web site or auction, by entering their credit card number.

   2. Your web site or auction instantly sends that information over the Internet to your Merchant Account Provider.

   3. Your Merchant Account Provider checks to see if the credit card is good, and if the money is available to pay you.

   4. If the Account is good and enough money is there, the Merchant Account Provider takes that money from your customers� credit card account

   5. The Merchant Account Provider then sends that money to your Business Bank Account electronically.

   6. The order completes, and your customer has paid you.

So, the Merchant Account Provider is a middleman. They take the money from your customer�s credit card, and send it to your Business Bank Account. They charge you a small fee (about 2 to 3 percent of the sale amount) to do this. That�s how they make their money.

This is where we get into the whole point of this article. Merchant Account Providers all have something they call a Risk Management Department. Why? Because whenever a Merchant Account Provider takes money from your customer�s credit card, and puts it in your bank account, they take a certain amount of Risk. From their point of view, there are several things that could go wrong after they move this money for you.

From their point of view:

   1. It�s possible that you might not deliver the product you promised to a few of your customers. If that happens, the customer goes back to their credit card company (MasterCard, Visa, etc.) and makes a complaint. MasterCard or Visa refunds that money to your customer. Guess who has to pay that money back to MasterCard or Visa? The Merchant Account Provider has to pay it back! Then they have to try to get it back from you.

   2. It�s possible that the customer doesn�t like the product they bought from you. The customer contacts you for a refund, but you may have a no refund policy, and refuse the refund. Again, the customer complains to MasterCard or Visa, and MasterCard or Visa takes the money back from the Merchant Account Provider.

   3. It�s possible that you are a very clever international thief and scam artist, and after you collect a month�s worth of credit card payments from your customers, you take the money and disappear without delivering any products. The Merchant Account Provider is left �holding the bag�, and again, they have to refund all those cheated customers of yours.

There are several other risks that Merchant Account Providers worry about, but you get the idea, right? Basically, if for some reason your customer needs to get their money back and you don�t give it to them, it�s the Merchant Account Provider who has to give it to them. Then the Merchant Account Provider has to chase you for it.

Merchant Account Providers call that Risk. It�s the Risk they are taking in exchange for the 2 to 3 percent that they make from each of your sales transactions.

Like the example of Global Sales at the beginning of this article, Merchant Account Providers take steps in order to minimize the Risk they have to take.

One of those steps is something you have to be aware of and keep an eye on, for all the years you remain in business:

Every Merchant Account Provider automatically puts a LIMIT on the amount of money you can collect from your customers� credit cards each month. IF YOU GO OVER THAT LIMIT, they can and will keep the extra money from you, sometimes for several months.

For example, if you are a new Home-based Ecommerce business, and you open a Merchant Account for the first time, the Merchant Account Provider will probably limit you to around a $5,000 maximum per month. That means that you can only collect up to $5,000 in credit card sales from your customers each month.

Remember that the Merchant Account Provider doesn�t know you. They don�t yet know if you�re going to deliver your products to your customers. They don�t know if a lot of your customers are going to want refunds from you. They don�t know if you�re a scam artist who is going to disappear with the money after the first month, without delivering the products to your customers.

Because of that, they have to limit their Risk. They do that by limiting the amount of money that you can make them responsible for refunding.

So, you�ll start out with about a $5,000 limit on the money you can accept by credit card each month. That�s OK, It takes a while for a new business to ramp up and start earning more than that anyway. By the time you are coming close to your limit, you�ll have a history with your Merchant Account Provider. They�ll look at few months of successful sales without too many refunds from your business, and they�ll raise your limit when you ask them to.

The thing to remember here is that you NEED to keep an eye on your limit, and how close you are coming to that limit. Your Merchant Account Provider WILL NOT raise your limit automatically! YOU will have to contact them and say, �I�m doing about $4,500 in credit card sales per month, and I think I�m going to reach my limit soon. I�d like to raise that limit.�

When you ask them to do that, they�ll look at a few things:

   � The number of refunds you have given your customers in the normal course of business, compared to the number of sales

   � The number of customer complaints your customers have taken to Visa, MasterCard, etc., about your business.

   � They may ask to see a few months worth of your bank statements, your monthly Balance Sheet, etc.

This is just one reason that it�s very important to know how to handle Money issues for your Home Ebiz, and why I have FREE information that helps you with all these things on my site.

IF YOU DO go over your limit in any given month, your Merchant Account Provider can and will hold that extra (over the limit) money. They can keep it from you for months, depending on the situation. Generally, they'll keep it until they decide that you have 'proved yourself' to be worth the risk of releasing the money to you.

So, watch your Merchant Account limit, and contact your Merchant Account Provider�s Risk Management Department well before you reach that limit!

Chris Malta

Founder/CEO

Worldwide Brands, Inc.

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