One of the most essential but challenging aspect of running a business is ability to collect money, especially online.

The reason I say it is challenging is that as a startup it is increasingly difficult to know whom to trust and to get a merchant account provider to underwrite for you.

Most merchant account providers take personal guarantee while underwriting merchant accounts while assessing financial risks. This is one more reason why you can setup a C-Corporation in USA from any part of the world, but getting a merchant account becomes a challenge if one of the Directors / partners do not have SSN in USA.

And these assessments are in place for good reason too. The credit card transaction is open for dispute of chargeback upto 6 months and the merchant account provider is at risk during this period.

Here are few points to keep in mind while devising your billing strategy for subscription businesses:

  • Billing monthly, as against yearly to start with. This reduces risk from a merchant account provider perspective.
  • Let us say they underwrite a business and business sells a thousand $100 per year plans to customers in the first 5 months.
  • If the business goes under for any reason taking all the money, they will be left holding $100k worth transactions that can be charged back by customers and they need to return every dollar with nowhere to recover.
  • If the plan is sold monthly their risk exposure is much less. Customers are bound to NOT pay when they are not happy with service levels in subsequent months.
  • If you are planning for sudden ramp-up in sales, ensure you engage with your merchant account provider and inform them about your anticipated growth plans and sudden spurt in activty over & above projections.
  • Negotiate a rolling reserve if your merchant account provider considers your profile as high risk. You can gradually reduce the reserves as you build credibility.

Ensure you provide an accurate and reaslitic estimate of projected sales, ticket volumes, ticket size while applying for a merchant account as these are elements considered to assess the risk profile of a company along with service or product being sold, company history (if any), company financials and owner’s risk profile.

After you have started credit card transactions, always ensure there is NO room for ambiguity for customers when they read their statement.

One of the best practices is to ensure you always use print the service name bought by the customer, even if your registered company name is different. You can also suffix it with a support phone number for your customer to reach out to.

The idea is to provide your customers a chance to reach out to YOU, the merchant and resolve than calling the credit card company and applying a chargeback.

Say the customer is using your SAAS product named “Tracktime” and say your company name is XYZ ensure the card statement has something like this: “XYZ-Tracktime-1-877-123-456″.