“Do you provide a high risk merchant account?” a gentleman anxiously inquired yesterday.  He seemed puzzled that he would have difficultly gaining credit card processing capability for his collection agency.

It’s just a fact of life that some people and their businesses are considered to be a higher risk when it comes to trying to obtaining services such as insurance and loans. Well, you can also add merchant account to that list as some vendors have a hard time obtaining a provider because of various factors that categorize them as a high risk.  (Merchants who are deemed a high risk need to open a high risk merchant account.)  

Some examples of high risk businesses include internet marketing, the travel industry, membership clubs, telemarketing, and debt collection. However, being considered high risk doesn’t mean you can’t set up a merchant account, but it will probably be a little more difficult because the providers are taking a chance on you as it could lead to financial losses for them.

What makes these businesses high risk in the first place is the fact that statistically they often have a lot of chargebacks and are sometimes susceptible to fraud and criminal activity. High risk accounts are usually necessary for vendors who can’t get a standard merchant account because of their type of business, monthly volume, and target markets.

Most merchant account companies and banks will look at your business carefully before signing you on and weigh the following information: previous merchant accounts, your credit history and how long you’ve been in business. They may also want to see items such as your business license, current processing statements, bank statements, and current profit-loss statements.

The amount of time you’ve been in business is important to merchant account providers as they like to know that you understand how the system works, especially relevant if you’ve previously accepted credit cards. This means you are able to identify and solve possible risks such as fraud and can manage credit card transactions with few problems.

If you’re familiar with merchant accounts it will be in your favor but any previously-terminated accounts will definitely show up on your file, which could scare prospective providers away – especially if the merchant account provider initiated closure of the account.  

A credit report tells the account providers if you pay your bills and if you pay them on time. It will also show if there have been any judgments, liens, or bankruptcies filed against you. Of course, a good credit report will definitely help you out if you’re opening a high risk merchant account.

If you are involved in a high risk business, there are a few strategies that you can employ to help your cause, however it’s still no guarantee that you’ll get an account without any problems.

Again, the most important task is to make sure you have a good credit rating. It’s pretty easy to get hold of your credit report by speaking to a credit reporting bureau or a business that supplies merged credit reports from major agencies. It’s best to check out your report before applying for a merchant account. This way, you can see exactly what’s on it and if it’s good enough to use when applying. If it’s not too flattering, see if it’s possible to get rid of any negative items such as past bankruptcies, late payments, or liens against you.

No matter what your business is, a good credit rating could go a long way when you’re trying to secure a merchant account. Make sure you’re always honest when it comes to your credit report, and past merchant accounts, as you can’t hide anything. In addition, if you encountered difficulties in the past and overcame them, it will improve your credibility.

Be aware that high risk businesses often have to pay higher fees and/or follow special account requirements. So if this is the case, you will have to agree to the terms or forfeit the opportunity to secure a high risk merchant account. Even if you have to dole out a bit more cash to the provider, it will benefit you as it means you’re able to offer customers other options instead of just cash or check. This should help your sales due to higher purchases and impulse buying.  (Of course, as you look for reputable vendors, still scrutinize the complete spectrum of credit card processing rates.)

If you have a sketchy credit report but manage to find a provider, you may also have to set up a reserve account to protect them from possible losses. A reserve account is typically calculated as a percentage of your sales, and the funds are held in your name by the bank for a period of time.

So if you’re running a high risk business, it’s not all doom and gloom out there, but prepare to pay a little bit more money and possibly follow some stricter rules that are laid down by the merchant account provider. In the long run, it should be well worth opening a high risk merchant account.