Friends Don't Let Friends Use Their Merchant Account!

Not every small business has a merchant account, and if your business does, you might be put in the awkward position of being asked to use your account by a friend. You want to help them out, and don't really see the harm in it, so what should you say to them?

The short answer is: say no. You might not think it's a big deal, but the credit card companies take it very seriously. The practice of letting an unauthorized party use your merchant account is a violation known as factoring, and will result in serious financial penalties, and may result in the cancellation of your merchant account. And if your account is terminated under these circumstances, you may be placed on a watch list that ensures you won't be eligible to open another account.

What's the big deal with factoring? Why is it considered so unacceptable? Basically, when you are assessed for your merchant account, you are assigned a certain risk factor profile based on the type of goods you sell, the potential for fraud and chargebacks and so on. This profile determines the fees you are charged and other elements of your merchant account. If someone else sells goods through your account, they will have a totally different level of risk than you that your merchant account provider has no way of knowing.

I understand how tough it is to turn down a friend who asks for a favour. But if they ask to use your merchant account for their business, you must put your foot down. Explain to them the danger doing so would put you in, and tell them you are unable to help. While you're at it, help them understand the benefits of getting their own merchant account, which they are obviously hesitant to do.

Some owners of very small businesses think that they don't really generate enough sales to counter the expense of having a merchant account. They will likely find, however, that if they start allowing credit card purchases, they are certain to have increased revenue that will more than pay for the fees and cost of equipment. A merchant account for a very small business can cost less than a dollar a day in fees. A merchant account specialist can help them find lower-cost used or refurbished processing terminals, or lease them the necessary equipment.

If the business owner suffers frompoor credit history, they shouldn't make the assumption that they won't be able to get a merchant account. If their business does a small volume in monthly credit card processing, and they haven't gone through a bankruptcy or similar serious financial problem, they should have little difficulty getting approval for an account. And if their business is seasonal and more or less inactive for certain periods, there are merchant accounts designed for them too, which work on a seasonal basis and won't charge fees during inactive periods.

So if you have a friend asking you to run transactions through your merchant account, respectfully decline, and use your powers of persuasion to help them see the benefits of getting their own account. It will be worth their while!