In this digital age, it has become almost impossible to make it big as a business owner without e-commerce. And for transacting business online, a trustworthy and reliable merchant bank account is indispensable. Unfortunately, while you doubtlessly have total trust in your own business, financial bodies may not share that same confidence. This can make your journey much harder than it strictly needs to be. Thankfully, however, all is not lost. Read on to find out how to create a merchant account for a high-risk business.

What is a Merchant Account?

A merchant account is a particular type of bank account opened with a merchant ‘acquiring bank’ by businesses looking to process electronic commercial transactions. These accounts are opened by drafting detailed agreements on a case-by-case basis that lay down the custom-made terms of the dealings between the parties. These ‘merchant account agreements’ include important parameters like payment methods to be supported, service fees and tariffs, additional services, and network coverage.

Operational guidelines like employee training, fraud prevention, KYC requirements, and legal jurisdiction are also laid down. The bank provides monetary facilities like an account, clearing and loan facilities, and other functions and has tie-ups with specialized electronic processing companies that handle front-end payment gateways. These firms often focus on particular geographic regions, payment methods, or business types; the best acquiring banks understand a diverse basket of processors to provide a range of services to customers.

The business, in turn, maintains a ‘terminal’ with the bank through which transaction data is transmitted. After receiving this information, the bank decides which processor is best placed to handle the payments and forwards the request for settlement. After authenticating the transaction, the processor sends a confirmation to the bank, which handles the actual transfer of funds. In the day of paper-based banking, these transactions could have taken hours or even days, but modern digital systems handle them in seconds. Fees often take the form of a flat or floating-rate transaction tax levied by the processor and the bank, as well as an account maintenance fee and minimum balance requirement.

What should a Merchant Agreement Contain?

Merchant banks execute agreements with businesses only after much deliberation and investigation, as they take quite a substantial risk in handling their accounts and processing transactions. More trustworthy customers may get relaxations in fees, interest rates, and additional amenities, while dubious ones may be charged excessive and punitive rates or even denied outright. Formally, these are called ‘high risk’ businesses, and merchant banks will only work with them after a lot of thought.

Some of the things that can render your business high-risk are:

• Volatile and uncertain trades, such as stock brokerage, debt collection, or credit evaluation.

• Morally dubious activities like gambling, prostitution, adult films, and literature, or weapons trade.

• Young company or startup.

• Bad credit score or market reputation.

• Disreputable persons involved in management.

• Poor financial status or business track record.

• Primary operations in politically or economically unstable regions.

Whatever be the reasons, banks may often flat-out refuse to work with you or offer completely unreasonable terms if you are involved in any such business. Fortunately, there is hope if you are willing to go looking for it.

Steps to Open a Merchant Account for Your High-Risk Business

1. Determine If Your Business is High-Risk

The first step is to find out if your business would be unpalatable to merchant banks. Look at where you operate and what goods or services you deal in. Scrutinize your accounts and management structure. Check if you have any outstanding bad debt or loans. Is your market niche well-worn or wholly new and unexplored? How is your previous performance in business? Put yourself in the bank’s shoes and ask yourself if, looking from the outside in, yours is a company that would be safe to invest in. Be fair and truthful to yourself in this analysis, and ask for second opinions if necessary.

2. Go Jurisdiction-Hunting

If your local banks are no good (and they are likely to be; otherwise, you wouldn’t be reading this), it’s time to set out on a hunt. Check outside your state and national borders. In a modern, digitized world, business backends no longer need to be physically close. Look for financially and politically stable places with solid corporate and financial privacy norms, low taxes, and ease of doing business. A jurisdiction where your kind of business is legal and, ideally, widely acceptable is generally more likely to accept you too.

Many such places worldwide are well-known in the corporate world, such as the Cayman Islands, Singapore, and Switzerland. Many service providers, including merchant banks and processors, have set up shops in these places expressly to serve high-risk businesses like yours, including (and probably especially) legally dubious ones. Another advantage of setting up in these places is that other financial services like accounting, debt collection, credit guarantee, and wealth management are also guaranteed to be close at hand, often under the umbrella of the same conglomerate that handles your merchant account.

3. Learn to Sell Yourself

Even in the friendliest of places, you aren’t likely to get a warm welcome if your business looks like it will keel over and die any minute now. Think of it as preparing for an interview. It would hardly do you any favors to show up looking and smelling like a heap of trash. Ensure that your business idea is solid, relevant, and has good growth potential. Put your finances in order and prune any leakage. Invest in a professional website, brochure, and business cards. Prepare easily digestible information about your goods and services in advance. Show up well-dressed and speak with confidence. Ninety percent of the deal will be decided by whether they are impressed with you.

Conclusion

Thus, you can open a high-quality merchant account even for high-risk businesses as long as there is a will. It certainly won’t be easy; in fact, it can demand a fair bit of effort and even a few rejections. However, with perseverance and proper research, you are bound to succeed. A functioning arrangement with a merchant acquiring bank will catapult your business to the next level, and undoubtedly you now have a good idea of how to bring this evolution about.

Read Also : Debt Management Plan Online: A Complete Guidance for You

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A Debt Management Plan is not the same as a Debt Management Program. Although both go by the same abbreviation DMP and the idea of both is pretty much the same. The only difference between a Debt Management Plan and a Debt Management Program is pretty self-explanatory.

A Debt Management Plan is your personal choice, and you are not legally obligated to follow it. However, a Debt Management Program is something you have enrolled yourself legally and are obligated to abide by the program rules.

Like Debt Management Programs, it is not easy to stick to a Debt Management Plan when there are numerous ways to cheat it. Unlike Debt Management programs, you are in complete control of the rules set by you and its flexibility according to your will.

However, there is no harm in trying to follow one by yourself. If you think you are determined enough to stick to it, then you must set up a reasonable plan as soon as possible. There are many Debt Management Plans online that you can take the help of, with your budget planning.

When do you need a Debt Management Plan online?

Any person may need a Debt Management Plan if they want to plan and organise their debts in an orderly fashion. Usually, the debts that we owe can slip our mind easily, especially when you are dealing with multiple debts.

For large scale businessmen who take out big amounts of loans from banks and independent creditors, it is almost an impossible task. To keep a mental note of all the loans that they owe and their repayment time periods is indeed a hefty task. Also, how much money they owe to which creditor, it is hard to keep a count.

But, even if it is just your credit card debts piling up, you may take the help of a Debt Management Plan online. If you decide that you are going to start paying them up in order to clear them, a proper DMP can help you.

Pros and Cons of a Debt Management Plan

The pros of a Debt Management plan UK are potentially far more than the cons it has. Further, you are no longer under the pressure of clearing your debt. Your creditors can no longer bother you by calling and asking you to make the payment.

However, it is totally up to oneself to weigh out the pros and cons of a debt management plan they have set up. The pros and cons depend on the particular financial situation that a person is currently at.

Pros

In general, setting up a Debt Management plan will make you learn about your spending habits. You will be able to figure out various ways to cut down on unnecessary expenses and save. Yes, a debt management plan will definitely get you used to a saving habit.

There is a considerable amount of money to be saved if you can successfully pull off a DMP. It will include you having to negotiate with the banks in order to reduce the interest rates for you. Resulting in a reduced amount of fees and eliminating a considerable amount of sum that you can now afford.

Once you start making regular payments, very naturally your creditors will stop calling you to ask for money. When they see that you are not missing any more payments, they will regain their trust in you. This is also going to improve your credit score which might have affected you by taking out large sums of loans.

When you start paying off your debts, a great deal of stress and anxiety is relieved off your shoulders.

Cons

Since you are opting for a debt management plan that is set up by yourself, then you will not be receiving free credit counselling. The non-profit agencies are always there to help you with your debt management planning. You will not be getting any help planning out your monthly budget to help you cut down the expenses.

So, you will have to make all the planning yourself and create a budget that takes care of all your necessities. They include obvious expenses like food, rent, transportation and other utilities.

Therefore, you have to calculate everything by yourself. It is important for you to make these calculations accurately. This will help you to see whether even after paying for all these necessities there is still any room left for paying the monthly debt.

If you are not conscientious enough then chances are that the DMP will not work out for you. One mistake can result in you drowning into more debts.

How to set up your own Debt Management Plan? 

Adapting to a debt management plan will definitely affect you or your family in a certain way. However, you need to make sure that the problems do not go beyond a certain point, where it might end up affecting severely.

In order to set up your own debt management plan by national debt line, you need to follow a strict set of steps very carefully and thoughtfully.

Follow these steps below in order to have a methodical approach towards your debt management planning.

Step 1: Plan using a Debt reduction Spreadsheet

There are many debt reduction spreadsheets available online to help people with their DMP without having to go to an agency. These spreadsheets are made ready for you and already prepared to calculate your debts in a simplified way. All you need to do is input your monthly expenses and accordingly, the spreadsheet will calculate your repayments.

The spreadsheet will have data organized according to unsecured debts by the name of your multiple creditors. It will also include the amount due, interest rate, monthly payment amount and the due date of your payment.

In another space in the spreadsheet, there will be a detailed section of all your monthly expenses. This will include your immediate expenses such as daily food, house rent, car payment, child care student loan payment if you have taken an educational loan, etc.

There will also be another section where it will contain a list of all your sources of income. From the monthly income, subtract the monthly expenses and that will be the extra savings that you need to use to pay off the debt.

Step 2: Negotiate the rates of interest with your creditor

It is very important to speak when you really need to or do not have too many choices to opt for. If you think your creditors are charging too much interest fee and the monthly interest rate is high, you should talk to them.

By talking it is meant that you must call your creditor and explain to them your problems so they can be a bit considerable towards you. Negotiate with your creditor by asking them to charge lower rates of interest so it becomes affordable for you to make the monthly payment.

Step 3: Look for ways to boost your income

There is no better way to pay off your debt other than finding news sources of income. It is always a good idea to grow your income and money. So, if you think you can pull off a temporary small scale business and benefit with whatever revenue that comes from there, then you should do so.

You can even take up odd jobs or part-time jobs like working at a dining or earning as a bartender. This will bring you extra money that you can use to pay off your unpaid debt.

Otherwise, there are other ways to get money like selling old items on OLX or eBay which also makes for a good start. Use this money to pay down the debt quicker by creating an emergency fund.

Step 4: Cut down on your overall monthly expenses

This should probably be the first point. There is nothing like limiting your overall expenses and cutting down on unnecessary expenditure. The first thing you should do is put your credit card away.

Make up your mind to not use it for a while till you pay off your debts. If you really want to be debt-free then it must come at the cost of some genuine efforts. Otherwise, if you continue to indulge in your spending habits then you will be back to where you were before you started a DWP.

Start tracking your daily expenses with your set up budget. There are a lot of money-saving budget apps that can help you with this. In fact, another way in which you can save and limit your expenses is by opting for cash always.

Just carry the amount of money in cash that you think you will require throughout the day. You must only use your cards when absolutely deemed necessary, for example, maybe during an emergency or something.

Frequently Asked Questions

Q. Is a Debt Management Plan suitable for you?

Ans. Anyone can opt for a Debt Management Plan if they are committed enough to follow it. However, sometimes even if you are not, you must adapt to a DMP, if you are on the verge of crossing your credit limit.

Q. Can anyone set up a DMP online?

Ans. Yes, it is possible for you to plan and arrange your own repayment methods with your creditors. In fact, you can even apply for a Debt Management Plan online.

Q. Does a Debt Management Plan or Program affect the credit file?

Ans. Yes, it almost always certainly affects your credit file. That is because with a DMP you are now paying less than the amount that you had agreed to pay when you took the debt. Although the details of your DWP is not specifically registered on your credit profile, there might still be other details like your default payments or missed payments, court action etc. This detail is going to be there on your credit profile up to a period of six years.

Q. Is DMP the same as Debt consolidation?

Ans. No, a Debt Management Plan is not the same as debt consolidation. However, debt consolidation could be a part of a Debt Management Plan. Debt consolidation includes taking out a larger amount of loan to pay off your smaller loans. But, a Debt Management Plan does not involve taking out any more loans but pay off with whatever is left with you.

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