Do you have an entrepreneurial dream, but fear that you will have difficulty with payment processing? Have you been told that yours is a high-risk business? You need to understand exactly what industries and companies are considered high risk and your payment options so that you can make informed choices as you move your business plans forward.
Several factors can cause lenders and payment processors to label your company as high risk. If you are opening a brand new business with little to no credit card processing history, it is likely that you will fall into this group. Likewise, a terminated merchant file, TMF, resultant from credit card problems can adversely impact your ability to find a credit card processing company to work with you.
Processing accounts can be terminated for a variety of reasons, including a high number of chargebacks. This is when a customer cancels the transaction and receives a refund for their charge. While an occasional chargeback won’t have much of an impact on the viability of your company, frequent ones will.
Though originally intended to help protect consumers, chargebacks can do a great deal of financial hardship for merchants. While some customers will initiate a refund through the merchant before seeking a chargeback, not all do. Quite often, retailers don’t even know about the situation until their account has been affected. Not only are merchants responsible for the refund, they are also subject to fees as high as one-hundred dollars. Credit card processors keep this fee and leave the chargeback on record, even if the consumer cancels the process.
Your company is likely to fall into the high-risk category if you accept multiple currencies or sell to consumers in countries with higher than normal chargeback rates. Most countries with English as the primary language, South Korea and Singapore don’t fall into this category. However, you should never open your digital doors to foreign nations until you have checked with your credit card processor.
Businesses and merchants with a poor credit history are usually considered high risk, even if their industry isn’t. Business owners can begin to resolve this situation by cleaning up the credit reports. However, that won’t fix the immediate issue of being labeled a high-risk company.
Several industries fall within the high-risk category. Even if you don’t have a TMF or poor credit, you could still find yourself paying higher credit card processing rates if the industry is considered high risk. Those with the greatest risk include appliance repair and manufacturing, commercial banking, media manufacturing and leather tanning. While demand is declining in these industries, other high-risk fields aren’t.
The following business sectors are generally considered high risk:
Adult Entertainment – While you might have heard that sex sells, it can also cost your business money. In addition to videos and streaming content, sales of sexual toys, novelties and lingerie are likely to earn your company a high risk label. Likewise, online dating and escort services are charged these higher fees.
E-Commerce – The web has multiple potential avenues for income, though many are considered unstable at this point. Automated billing related to subscriptions, membership fees and multi-level marketing are all more financially dangerous than one-time charges. High risk services, such as tech support, marketing and advertising also fall within this category.
Gambling – Gaming and gambling companies are high risk. Fantasy sports, online gaming and poker are just a few examples in this fiscally insecure industry.
Health And Wellness – There are many different retailers who encounter difficulty finding a credit card processor in this industry. If you intend to sell any type of pharmaceutical or nutraceutical, plan to pay more for credit card payments. Dietary supplements, kratom and similar substances fall within this category.
Although several states have decriminalized, and even legalized cannabis products, businesses serving this segment of consumers are still at risk. In addition to the concerns regarding chargebacks, processing companies are hesitant to handle payments for these budding businesses.
Smoking And Vaping – Just as marijuana retailers are considered high risk, so are businesses that sell tobacco and vaporizing products.
Other – Many businesses outside of the above mentioned industries are also subject to high risk processing. This includes business consultants, firearms merchants and law firms. Mobile app creators and travel agents are also considered high risk. Additionally, any industry with a high rate of injuries, including fatalities, are in this expensive category.
While not a comprehensive list, this should help you to understand which industries are more at risk than others for being labeled high risk. If your company falls within one of these categories, you will need to plan your budget accordingly. Otherwise, you could end up closing shop before you even got the business off the ground.
There are some steps that you can take to protect your investment and your company. Although you can’t control all of these factors, you can control some of them. For instance, make sure that your own credit report, as well as that of other investors, is in good shape. Likewise, take care of any outstanding business charges that are adversely impacting the company credit report.
Most banks, credit unions and other traditional credit card processors won’t work with high risk merchant accounts. You must find a processor who handles high risk accounts if you are going to accept credit card payments. Fortunately, there are reputable companies willing to provide viable solutions to high risk individuals and businesses.
Spend a bit of time investigating your options before choosing a processing company. Look for reviews from other business owners. How well do they rate for customer service and pricing? Are merchants generally satisfied with their experience, or do you see consistently negative information?
Once you have eliminated processors with low satisfaction ratings, you can look at the company websites to find out what their terms and fees are. Ask for more information from the best merchant services for high risk business, that seem to be a good fit for your business needs. Though all companies must pay credit card processing fees, you can expect to pay more as a high-risk merchant. However, your business can thrive if you go into it with open eyes!