Do your eyes start to glaze over when you try to read through the contract from your merchant account provider? While your boredom and confusion are certainly understandable, it’s wise to have a complete idea of the terms you are agreeing to. One particular concept often appearing in these contracts that you need to understand is the idea of volume commitments.
Volume Commitments Defined
As the name suggests, a contract with a volume commitment stipulation requires you to process a specified amount of money each month through your merchant services accounts. If that doesn’t happen, you may be charged a penalty or experience a hike in your discount rates. For instance, let’s say you agree to process a minimum of $15,000 in sales through your credit card processing account each month. If you have even one slow month of sales of $13,000, your costs and penalties could go up.
The Advantages of Volume Commitments
For larger businesses or even smaller ones that are well-established and stable, contracts with volume commitment clauses can be advantageous. This is because in exchange for these commitments, you are often given a lower rate. However, if you even have an inkling that you might not meet your specified monthly or annual volume, these lower costs could vanish. Therefore, don’t gamble on a contract with volume commitments if your company is new or if you have stiff competition that is giving you a run for your money.
What Should You Do?
The good news is that there are plenty of merchant services accounts out there that do not require that you agree to volume commitments. While their rates may not be quite as tempting, you can at least rest easy knowing that you do not need to scramble to meet a minimum that may be difficult to attain during particularly slow sales months.
That underscores the importance of giving your account provider an accurate estimate of your monthly sales volume. If you low-ball it, the merchant will consider you to be a higher risk. On the other hand, exaggerating your figures can set you up for commitments that you cannot possibly meet.
The contract you sign with your merchant services account provider is a legal document. As such, you are held to its terms. Therefore, be sure you understand everything before you sign. If that includes volume commitments, think long and hard about your company’s stability, competition and sales prospects before you put your name on the dotted line.