Do you know how merchant accounts function?

Without a Merchant Account for processing credit card payments, an online multi-level-marketing company cannot conduct its business and collect payments for products and services provided.

This post addresses one essential requirement all network companies share –  one or more Merchant Accounts.

All MLM Companies Need One or More Merchant Accounts

All MLM and network marketing companies need a Merchant Account to process credit card payments from customers. After all, this is how all e-commerce companies, and most retail companies, collect payments. It’s a requirement shared by big retail companies as well and your local pizza parlor.

Credit card payments enable your company to transact your business and auto-ship products to your customers.

Merchant Account Issues for MLM Companies

There are some unique issues that MLM companies must recognize. One of these is that merchant account providers, mostly banks, classify multi-level companies as high-risk business in the same category as gambling and adult entertainment. The reason is that a multi-tier selling organization like a MLM company, that operates with a chain of distributors, suffer a larger proportion of charge-backs to your merchant account. These are refunds claimed and approved by a customer’s credit card supplier.

You can look at a merchant account as a bank lending you money for up to 12 months at a rate of 3 to 4 percent. Their compensation is a payment transaction fee of 3 – 4% for every payment transaction processed.

However, a Credit Card company can “charge back” (recall) funds paid to a merchant. This would happen when a customer identifies deceptive sales practices, fraud, or failure to deliver a product purchased. The card company, if it agrees with a customer complaint, would withdraw money from the merchant account company and credit the money back to the customer.

 

Restrictions Merchant Account Companies Impose on MLM Companies

A bank may impose a “rolling reserve” against a merchant who experiences a high rate of charge-backs. This may mean that the bank “freezes” payments earned over a period of 3-6 months. During this time, they will not credit your bank account with money earned from completed payment transactions.

The merchant account supplier can also suspend or cancel a merchant account for a network company that has a high charge-back rate.

 

Our Recommendations

  • In your merchant account application, be clear you operate a network marketing company.
  • To safeguard your business, get 3 or 4 merchant accounts.
  • Impose on your distributors the need to minimize refunds and charge-backs to your merchant bank account.

 

If you got value out of this, share it with your business associates and partners. Contact us if you need some further advice about Merchant Accounts.

Leave a comment