Early termination fees (ETFs) is a charge levied on a party that wants to terminate their merchant contract or agreement prior to the completion of the term of the contract as stipulated in the contract itself.
Now that you know what an early termination fees is, let me also point out to those who haven’t already realized that any service provider who intends to lock you into a two or three year contract with a clause that mentions a several hundred dollar termination fee, may not be worth the trouble. So, include checking for an ETF among other things to look for when you’re selecting a merchant account service provider.
In short, a service provider just isn’t as good as he claims to be if a hefty Early termination Fees is involved. Following are the reasons why a merchant account service provider feels the need of including an early termination fees in his contract:
- Fraud Prevention
When a credit card processor decides to process credit cards for your business, they are taking all liability for every penny that you process. They need to protect themselves from the dangers of fraudulent activity involved in the world of credit cards. By asking a merchant to sign up for a binding contract of two to three years against an early termination fees that runs into thousands of dollars, a credit card processor is just ensuring his own security.
- To make up for the work done to setup a business for credit card processing
Setting up a merchant account or to begin credit card processing for a merchant, a processor has to put in a lot of work. There are multiple details that are to be taken care of by a considerable workforce. Several hours of effort just to process an application because eventually a merchant may not want to process, has to be made up for. Also, the early termination fees is meant to make up for the application fees that is no longer charged by the merchant account providers in the US.
- To keep their customers
An early termination fee isn’t probably the best way to retain customers. however, after all the hard work it sure is frustrating to see a customer move to another provider just to save a few cents in a lower processing rate.
Lots of providers that have no choice but to require a contract with their customers: This is because of back-end companies that require minimum contract terms to underwrite merchant accounts. If the service provided is worth the contract, there should be no hang-ups at the merchants end either.
- Lastly, a binding contract does not necessarily mean you are dealing with a bad company
A company that demands an early termination fees for any of the above reasons can be a good service provider too. You will have to find that out for yourself by doing some extra research to come to a conclusion whether you’re willing to commit to a company for a couple of years or not. An educated commitment will not feel like you’re tied down, rather it will be a fulfilling long term relationship for both parties involved.
