New companies in direct selling start with developing their product, their commission plan, and their founding distributors. The next big requirement to starting your business is to get credit card processing. You can only work with cash payments for a short time before you realize there is a need for electronic payments. A few questions might come up. How do I get a merchant account and credit card processing gateway? How long does it take to set them up? How many do I need in order to work in multiple countries?
To begin earning revenue as a company, it is important to work with your software provider to connect your commissioning engine, order processing, fulfillment, and returns systems to your merchant account. I recently had a conversation with Glen Rawlins, a merchant processing and fraud monitoring consultant who works with startups and companies seeking to expand internationally. He has observed the difficulty new companies go through when they try to get and maintain merchant accounts.
Avoiding and mitigating account freezes
It is not uncommon for a startup to experience merchant account freezes within their first year or two of growth—sometimes even more than one. You might wonder why merchant account freezes are so common for new companies. Merchant banks, by policy, fear and avoid high risk business relationships, and because of the stigma around the direct sales industry, they tend to categorize MLMs as high risk by default. New companies starting with low but consistent sales can experience sudden jumps in profitability. From the company’s perspective, this kind of period is a boon, but from the merchant bank’s perspective it’s suspicious. So in addition to the pain of having your merchant account frozen, it often happens exactly when you need credit card processing the most. For this reason, it’s a good idea to work with processors that specialize in serving the MLM industry. If you aren’t sure how to find industry-focused processors, your MLM software provider can give you suggestions. They know who their other clients use, and they know how reliable those providers have been in the past.
In addition to this, Glen highly recommends that you avoid exclusivity agreements with credit card processing and merchant account companies. This single piece of advice can make or break a company. “Always to get at least two merchant banks, and do balancing to send some charges through each account. Some gateways will do load balancing automatically, with others you will have to toggle between accounts in your shopping cart manually. If you are unsure of how to do this, you might consider sending retail replicated site credit card orders thru one processor and wholesale thru another processor.”
Many merchant banks try to entice new companies to sign exclusive agreements. It’s difficult to put into words how essential it is for you to avoid these kinds of agreements. You need to provide yourself a way out; make sure you always have the ability to migrate to other processors with 30 days notice. In these contracts and negotiations this is sometimes referred to as mobility. As always, make sure you have legal representation with direct selling experience, and make sure that your team reviews all contracts.
Check out part two to learn about credit card fraud and how to avoid it!