Ever wonder why a payment processor needs to approve your account before you can accept credit card payments? This video will explain the risks involved with credit card processing:
Let’s say you’re a furniture store. You have a big weekend sale, offering beautiful couches for $500. Your customers pay by credit card and are told that their new couch will be delivered in two-weeks. At the end of your weekend, you will receive the processed funds in your bank account.
A few weeks pass and your couch supplier falls through. Customers without a couch get angry and start demanding refunds. As a merchant, you’re now responsible for refunding those credit cards. But what if you’ve already spent that money on rent? Your payment processor will be liable for refunding your customers if you’re business is insolvent.
Payment processors are exposed to many scenarios like this one, where they can be held liable for refunding the customer if the merchant is no longer able to pay. Similar to loan approvals, processors will look at a number of factors before approving your merchant account. These include:
- The industry your business is in.
- How much credit card volume you accept.
- The average size of your transactions.
- The delay between when a customer pays and when they receive their products.
Typically, a processor will also perform a personal credit check on the owner of the business or ask for your business’ financial statements to make sure it can support potential refunds and chargebacks.