Throughout this series of posts, we’re sharing several key lessons learned to protect your company in payment processing terms and contracts. In this second week, we hope you find the information valuable to your business. If you’d like additional information on these blogs, please contact us by clicking here.
Tip 2: Examine the agreement term and conditions to cancel prior to term end.
The next step, after requesting the contract’s detailed term sheets, is to carefully review the contract’s agreement period and conditions for terminating the contract prior to the end of the contract period.
Most contracts with a payment processor have three-year durations, which is not particularly unreasonable. What is critical regardless of the contract term period is the penalty for terminating the agreement prior to the end of the term. The majority of payment processing contracts will include an early termination fee. A fair termination fee is roughly $150 to $200. While we typically negotiate these early termination fees down to $0 for our clients, we do not consider this range reasonable.
However, we have encountered contracts with much more punitive termination fees of more than $500. Even worse, in some cases, “damages clauses” may be included in the fine print that would obligate a business to pay the provider any fees that would have been incurred through the end of the term, even though the business may no longer use the service. These damages clauses can add up to thousands of dollars in termination fees. Clearly this is unwarranted and out of line.
As a general rule, the more abusive the termination fee clause, the more abusive the actual charges and pricing for the program will likely be. Ensuring the term and termination penalty are well understood and fair prior to signing the agreement will provide your business more flexibility and greater control over your merchant processing.
MSP Consulting takes the time to thoroughly vet these payment processing contracts for our clients and, with proper diligence and escalation, we have successfully established reasonable terms and resolved contract issues for our clients.