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What To Watch Out For When Opening Your First Merchant Account

Today is the day! You finally get to open that little corner retail shop that you’ve always been dreaming about. But a lot of things are going to be new to you. You’re going to need to start taking credit cards. You’ve heard the horror stories and now the merchant processor salespeople are starting to reach out. You know you will need to get a merchant account with someone, but who? 

There are a few things to watch out for when searching for the right merchant services provider to partner with. Most are upstanding ethical companies. Some are not. Either way, you should understand the warning signs before signing the paperwork.

Due Diligence

Always perform due diligence before signing up for a merchant account. Salespeople usually leave behind a plethora of brochures and paperwork. Always make sure to read them. But don’t take them at their word. Do your own research as well. Reviews on Google, Facebook and the Better Business Bureau are a great place to start. While you’re researching a potential company, it’s also a good idea to research the salesperson themselves. Some merchant account providers give their salespeople “carte blanche” when it comes to getting sales and signing up new accounts. So the opportunity to use underhanded practices is possible. Look up the salesperson on LinkedIn. If they move around a lot or just started at the company, that’s a red flag. Another thing you want to know is that some Merchant Account processors, even upstanding ones, may just be one guy working out of his home. It could be hard to contact that person if an issue arises after you sign the contract. So look for companies that have storefronts or offices, not just a P.O. Box. This way, if the need arises, you can stop by and see them in person. While you’re doing all this research, there are some things you should definitely be on the lookout for. If found, these huge red flags are something that should make you turn away immediately.

Surrounded by mouse traps

Liquidated Damages Clause

The number one thing you should look out for, that is only used by the most corrupt and evil Merchant Account providers, is a little thing called a “Liquidated Damages Clause”. It will be found somewhere buried in the contract that they have you sign with them. 

A Liquidated Damages Clause can be written in a number of ways, but the main crucks of this clause is this:

 Let’s say you sign a five year contract and your average monthly merchant account fee is $250. Six months into the five year contract, and an issue then arises and you no longer want to work with them. The Liquidated Damages Clause states that in order to get out of the contract, you will need to pay them the remainder of the money for the five year deal. Let’s say $250 is your total monthly fee. There are 54 months left on the contract at this point. So now you would need to write them a single check for $13,500.00 to get out of your contract. That is ridiculous! Companies that use the Liquidated Damages Clause are also not afraid to use the court system to their advantage. They have their own lawyers and will sue you for every penny owed or tie your company up in a lengthy legal battle, while still requiring you run your credit card sales through their merchant account. For a brand new company just starting out, this can be a nightmare.

Corrections On The Contract

A more subtle trick, also used by corrupt merchant processors, revolves around handwritten “corrections” on the contract. It works like this. A salesperson will pull out a contract template with some rates, or possibly even the length of the contract, already filled in. Then they will take a pen and cross out the rates and write in lower ones, to “correct” their standard rates down to special lower rate just for you. They will then have you sign the contract with all the handwritten “corrections” on it. What the salesperson isn’t telling you is that there is a single line, deep in fine print of the contract, that states that any handwritten notes or corrections are null and void and do not change any of the numbers printed on the contract. You walk away thinking you got super low credit card processing rate and a contract that you can easily get out of after a year. Only to get your first statement and learn that your rates are much higher than expected and you’re locked in for five years. This trap is much harder to spot in the contract than the Liquidated Damages Clause. It can be done with just a single line while the Liquidated Damages Clause requires a whole paragraph. This handwritten “corrections” trick can be used in addition to the Liquidated Damages Clause, making for one vicious contract you need to watch out for.

Don’t take the bait

Be Wary Of Anything “Free” 

While most merchant processors are not so corrupt to use the Liquidated Damages Clause or the handwritten “corrections” trick, they do use another trick to get more money out of you. While it is a good business practice to use a loss leader to increase sales, often done by giving away something for free, if a company is giving everything away for “free”, be wary. We all like hearing the word “free”, and sales people know this. What’s better than getting one thing for free, getting two things for free! It’s a way to get a one-up on the competition for your merchant account. But we all know there is no such thing as a free lunch. If a salesperson is giving you everything for free, that is actually a big tip off that they will be hiding a fee somewhere in your rates to make up for all the stuff they gave away. This trick is often done by merchant processing companies that also sell Point Of Sale systems. Their plan is to make you feel positive and excited that you got a whole POS system and a credit card terminal for free. Hoping that you won’t notice the extra fee being taken out of your bank account each month. This extra fee is often quite high, and if you were to do the math, you would find it cheaper to buy a POS system outright from any other company then getting it for “free” from them. 


Don’t let the horror stories you hear turn out to be your horror story. When getting a merchant account for your new business, do your own research first, look out for the big red flags such as Liquidated Damages Clause and the handwritten “corrections” trick. Lastly, don’t believe everything you hear, if it sounds too good to be true, it is!  

As always, we are here to help. Let us know if you have any questions.

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Total Merchant Supply is a POS dealer based in NC & SC.