As a savvy business owner, you have prepared yourself for many contingencies. Fluctuations in income, changes in inventory and customer dissatisfaction are just a few. However, you may have never thought your business would be turned down by a credit processing company because you were deemed to be high risk.
What Does High Risk Mean?
Put yourself in the place of the credit card processing company for just a minute. Your goal is to make money with as few complications as possible. For you, the ideal client is a business that is unlikely to have many chargebacks and for whom credit card fraud is rare or nonexistent.
Because international companies that import or export goods have a greater chance of running into problems, you probably want a client that is also based in the U.S. Further, you look for businesses whose credit is immaculate and whose operations are 100 percent legal. The bottom line is that you probably seek to stay away from establishments that operate in high-risk industries or exhibit a greater probability of financial failure.
Nothing Is Written in Stone
Now, put your entrepreneur hat back on. If you are deemed to be high-risk by a merchant account provider while trying to upgrade your credit card processing system, it is important that you stay calm. Just because you were rejected once, it does not mean that the next provider you try will react the same way. Some merchant services providers are more risk-averse than others. What’s more, there are some providers who pride themselves on serving higher-risk businesses, even advertising themselves as such.
As an example, one merchant services provider may consider a high rate of chargebacks and returned merchandise to be an indicator of risk. Meanwhile, another company might look at the same data as a sign that you are doing everything you can to provide excellent customer service with the goal of ensuring that your patrons get exactly the products they want. The importance of doing a thorough search for the merchant services company that best meets your business unique needs cannot be overstated.
Examples of High-Risk Businesses
Are you wondering whether companies like yours are traditionally considered to be higher risk? Here are just a few of the industries that often make merchant services providers nervous:
- Answering services
- Health clubs
- Tanning salons
- Merchants who sell electronics such as laptops and mobile phones
- Stores selling accessories for automobiles such as tire rims
- Multi-level marketing companies, sometimes known as pyramid schemes
- Adult-oriented companies. Even if you do not trade in pornography, you might be considered under this category if you have an over-18 chat line, work to make matches for couples, have an adult bookstore or run a chat line.
- Stores on major websites such as Amazon, Google or eBay
- Sellers of cigarettes, vaping products or related paraphernalia
- Astrological or psychic services
- Direct sales
- Life coaching
- Pawn shops and check-cashing companies
- Travel agencies and other vacation-oriented businesses
This is only a partial list, and even if your line of work is included, that does not necessarily mean that you will not find a merchant services company willing to provide you with the credit card processing system you are looking for at a reasonable rate.
The Consequences of High Risk
If you are indeed considered to have a business that is riskier to fund or to work with, you will probably have no choice but to accept the financial consequences. It is important that you do everything you can to meet state, local and federal compliance standards. This is particularly crucial if you are in an industry known to have a high rate of accidents and fatalities. This may mean spending capital on items such as safety gear in order to be within the rules and regulations. Once you can demonstrate that you are operating the safest possible company given the industry and other circumstances, credit card processing companies will be more likely to do business with you.
High-risk business owners can also expect to pay larger insurance premiums. For example, if you sell vitamins and other health supplements over the Internet generally considered a high-risk business you will probably pay more for your essential errors and omissions coverage. You also need to be aware that you are vulnerable to lawsuits if you are not in compliance with all of the regulations pertaining to your line of work.
No one is happy about being charged higher fees. Nevertheless, those extra charges can simply be considered the cost of doing business. Do all you can to get the lowest rate possible while ensuring that you are purchasing a quality product from a reliable merchant services company. You may find a vendor that is less squeamish about your line of work and therefore more willing to give you a low rate.
That being said, do not compromise on quality. The merchant account servicer that keeps the funds flowing and the insurance provider that offers you a safety net are invaluable partners for your business. Take care to find the ones that best meet your needs at a fair price. You will be glad you did.