Something that most business owners don’t know about credit card processing is that every transaction you accept is like a loan that you may have to pay back. This stems from the consumer’s ability to dispute or charge back a transaction.

If you own a restaurant and serve $4.00 hot dogs and $1.50 Cokes, even if the client gets sick they’re not likely to dispute a transaction. But, if you repair early model European sports cars and the client isn’t happy, and you charged them $3,000 for the work, you may see a charge back. Also, if you sell products on the web and accept a stolen card, even if YOU DIDN’T KNOW it was stolen- you’ll get a charge back. 

So, you, as the business owner, are the one that is responsible for this potential liability.  If you personally guarantee the merchant agreement- which most business owners have to do, and your business can’t repay the charge back, then you owe it personally. What happens if you can’t pay it altogether? 

Someone has to repay your charge backs if you can’t- and that someone is your merchant service provider. This is not a free service by the way. They’ll expect you to repay it at some point and if you don’t, you’ll most likely end up on the terminated merchant file- a combined list that all card companies share which gives the details of your business and you as the principal. If you ever again apply for a merchant account and you are on this list, it can be difficult if not impossible to ever get another merchant account- not a good place to be if you want to own a business.

So, how can you protect yourself?  First- if you can, always put away a little reserve money to pay charge backs if your business has large transaction sizes (over $300).  Next, make sure you never take a card from someone if you’re not reasonably sure that they are the cardholder. Never “key” a transaction if it’s possible to swipe it. If you have a website or perform mail order, use a fraud prevention software, verify the address of the cardholder and match to their shipping address, and get the three digit code on the reverse of the card. For large orders I recommend you call and ensure the cardholder is who they say they are.

If you’re in the repair business, for example a contractor, or you perform any type of service- wherever possible swipe the card transaction and have the client sign an agreement form that states that the work was performed to their satisfaction. This can reduce some possible charge backs later.

Lastly, always know why your card processing company may occasionally want financial or other data from you and will occasionally investigate transactions. Bottom line- if you can’t repay a charge back- they have to- not a good place for the merchant service company!