Every merchant services or credit card processing agreement that I have ever seen, has a contract term. Typically you will find that they are three years in length. If you terminate early, for pretty much any reason, you will be assessed an “early termination fee”. And, usually, this fee will be automatically deducted from the bank account that is on record with the with the credit card service provider.

Whenever you consider starting a relationship with a new credit card processing company, you will always want to make certain that you actually read the fine print of the agreement. The primary part of any new agreement that merchants agree to that they actually look at, tends to be the “Schedule of Fees“. Even those aren't necessarily clear in all instances but should be thoroughly understood before signing on the dotted line. Most merchants rarely look at all the Terms and Conditions. Now, that said, most contracts have the same verbiage but the “Term and Termination” portion can be quite different from one processor to another.

Get out your current copy of your merchant account agreement. Take a look at the back and look for the before mentioned section. Most often, here is what you will see or something very close to this:

“This Agreement shall remain in full force and effect for an initial term of three (3) years. This Agreement shall be automatically extended for successive one (1) year periods (underlined to draw your attention to this part) on the same terms and conditions expressed herein, or as may be amended, unless Merchant gives written notice of termination as to the entire Agreement or a portion thereof at least 60 days prior to the expiration of the initial term (underlined once again for emphasis) or any extension or renewals thereof, in which case this Agreement will terminate at the end of the then current term. Notwithstanding anything to the contrary set forth herein, in the event Merchant terminates this Agreement in breach of this Section 13, the lesser of the following amount(s) shall be immediately due and payable to the services provider–(a) the maximum amount permitted by applicable state law, or (b) $295, if such termination occurs within the first twelve (12) months period of the initial term of this Agreement, or $195, if such termination occurs after the first twelve (12) month period of the initial term of this Agreement…”

You see, whether you realize it or not, service providers have expenses in setting up and maintaining your merchant account so, therefore, they feel if you bail early, they're entitled to some compensation. Simply put, you absolutely need to know what the terms are before you make any commitments.

So, let's just say that some new merchant account rep (or as they're called in the industry MLS or Merchant Level Salesperson), performs a statement analysis for you. When they're all done, they show you the results and, of course, tell you they can save you a “ton of money”. Your first inclination is to want to make the change because, of course, you want the projected savings in your pocket. But, wait a minute, where are you in your existing contract? Well, you know that if you outright cancel to make the move to the new provider, you WILL PAY AN EARLY TERMINATION FEE. So, what are your alternatives? Well, it's really all about math so get out your calculator and look at the numbers.


Okay, so the new guy/gal has shown you a $20 a month savings….not bad but how's that all shake out? Assuming your early termination fee is $195, it would take you about ten months before you would actually start realizing those savings (after paying the early term fee) if you decide to make the change. Here's another option that you may consider. Does your existing contract have a “Monthly Minimum” fee. Quite often you will have a $10-$25 Monthly Minimum in your Schedule of Fees. This means that even if you don't process a dimes worth of credit cards in any given month, the processor is still getting something. Let's suppose that you have say eight months to go before your existing contract expires and you have a $20 Monthly Minimum. You could make the switch, not call in to “officially” cancel, take advantage of the savings and just pay the $20 minimum fee to the previous guys (in this example, it would be $160 for the eight months so it's less than the $195). The risk you take here is that the provider just happens to notice that you aren't running any transactions thru them any longer and they automatically assess the early term fee per the agreement. Oftentimes, however, they really don't notice. But, the other thing that you need to be alert of is you will still need to contact them and “ give written notice of termination as to the entire Agreement or a portion thereof at least 60 days prior to the expiration of the initial term” or it will renew for one more year and they will likely, sooner or later, catch up with you and collect the fee. These fees can easily eat away at any “projected” savings by the new provider and cause great frustration on your part.

As I've written many times before, it is crucial that you have any proposal made to you, explained in detail so that you fully understand all that is being promised. Sometimes, when someone has given you one of those “huge savings” proposals and you are still in the midst of a contract, you can use that with your current provider to negotiate a better rate with them. Simply call Customer Service and tell them you've received a quote for better rates and ask them what they can do for you to encourage you to stay. Don't tell them the numbers that you've gotten but just tell them that you have been offered what appears to be a “much better deal” and you wanted to give them the opportunity to sharpen their pencils or you may entertain going elsewhere. It's just a thought to consider especially if the service you're currently receiving, is up to your requirements.

One last thing while we're on the topic of Early Termination Fees. There are still some contracts out there that I have experienced that say something to the effect of “Early termination fees can be $295 or projected loss of revenue, for the balance of the contract, whichever is greater” So, let's just say that the credit card processor has calculated that they were going to be making $50 a month on your account and you had eighteen months to go….do that math. Now, that one could really sting so, once again, make sure you know what you're getting into. And, definitely get out your existing agreement, read the fine print and get fully acquainted with what your currently obligated to.