The Do’s and Don’ts of Processing Credit Cards

In an effort to fight the rise of risk of fraud, banks and underwriting departments are increasingly scrutinizing any vulnerabilities. This often results in funds being held, or even worse; your account may be terminated. We are hopeful that the following short list of “do’s and don’ts” will educate you in the correct procedure for credit card processing.

  • Always have coverage in your bank for processing fees: If a merchant processing bank fee or charge is ever returned for insufficient funds, the processing bank will become concerned. Their reasoning will be that if the merchant doesn’t have coverage for a small fee, how would they be able to recover from a large chargeback
  • Don’t round off large sales to even amounts: In some industries, larger sales that have even dollar amounts can trigger a red flag, and should be avoided unless the typical sale of that item actually does reflect that amount. For instance, if you have a sale that is $35,034.26, don’t round it off to $35,000. This would not apply to an industry such as charity, as it is normal in such instances to give flat donation amounts.
  • Don’t try to re-charge a declined transaction: If a transaction declines, never try to re-charge it multiple times for lesser amounts in the hope of finding an amount that is available on the card. The bank may flag you as trying to trick the system. Even worse, it is possible that even if you do get the transaction to finally go through, the transaction will technically be invalid since it goes against the rules, and if the charges are ever reversed, you may lose the money. What you should do is make the customer verify how much they have available first.
  • Charges must match the terms of the invoice:
    • Don’t break up sales without corresponding invoices: Banks expect charges to be reflected by the actual amounts of the invoice. For instance, if you have an invoice for $200, do not charge $100 twice, unless the invoice explicitly says that the terms are 2 installments.
    • Invoices must be recent: If the terms are net 30, don’t charge the card after 90 days. In such a case the banks consider it “debt collection”, which is never permissible to pay with a credit card.
  • Never charge your own cards. This includes family or relatives: An owner or stakeholder of a company may never swipe a card that belongs to them, or even if they are an additional user on someone else’s card, in their business. This type of “cash advance” is prohibited by the card association rules (visa/mastercard/amex/discover). The reason is because a merchant account is to be used only for purchases or services, and in such cases the intent is usually for purposes that are questionable at best (such as racking up miles). If a merchant is caught doing so, they risk the chance of having the charge reversed, and their account terminated. Merchants can sometimes even have a legitimate reason for using their own card (i.e., the signer for a charity wants to make a donation, or someone with multiple businesses authorizes a sale from one business to the other), nevertheless, the card associations do not permit it because they have no way of controlling it.
  • Never charge a card for loans: If someone owes you money on a loan, never accept payment by charging their card. Cards are to be used for legitimate purchase only and loan payback is never allowed.
  • Use your account in the way it was intended:
    • Only charge for items that fit the industry for which you were set up
    • Charge for amounts that are consistent with the industry you are in (e.g. a grocery or convenience store should never have a charge of $5000)
    • If you were set up as a “card present” account, you should not be keying in the majority of your sales.
  • Let us know in advance of a drastic increase in sales or volume: If you expect a drastic increase in transaction volume or amounts, let us know in advance. If it is legitimate, such as a merchant runs a promotion or seasonal spike, then we will notify the bank and give them the heads up. If they are not expecting it, you stand a good chance of getting red flagged.
  • Avoid repeatedly charging the same card number: In some instances, this may generate a red flag by banks.
  • Do NOT accept third party cards from customers: Purchases should be paid for by the entity named on the invoice. This means only using a card from the customer, or their company. Never accept a borrowed card that does not belong to them. In some industries this is common, and often happens innocently enough when a customer is making a purchase on behalf of their customer, and using the card of their customer (or a customer owes them money and offers to let them use their card for purchases). If there is ever a chargeback initiated by the actual card holder, you will not be protected.
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