Breaking Free: Why No Contracts Mean Better Processing Agreements

From My Vantage Point

As a business owner, navigating processing agreements are a flat out headache. Processors promise everything under the sun, deploy awful sales tactics and pitch "today-only" pressures. It's horrible, we know it. Business owners are smart and I hear them constantly tell horror stories of being trapped in a contract. While processing agreements do not rise to the level of congressional breaches, they do remind merchants every month of poor representation. That's why I believe that no contract, no commitment deals are the way to go when it comes to processing agreements. Being risk off as we say, helps merchants avoid the pitfalls of traditional contracts and ensures they are getting the service they deserve without being tied down to a long-term commitment.

The Purpose and Pitfall of Contracts in Processing

During my tenure in the financial services sector, I've come to understand that while contracts serve an important role in establishing clear expectations and legal boundaries in many aspects of business, they can often become a trap when entangled within processing agreements. Initially, the allure of a contract is understandable—it's a safety net, promising a defined service for a specific duration. Yet, the reality, especially in the realm of processing agreements, can be tragically different.

The pitfall begins when processors use these contracts not as mutual agreements of service but as a means to bind merchants to their services, regardless of satisfaction or evolving business needs. I've seen firsthand how these contracts can quickly go from being a source of security to a source of frustration. The issue intensifies when you consider the imposition of early termination fees. These fees, often hefty, serve as a punitive barrier, discouraging merchants from seeking better services that might align more closely with their changing needs or expectations. This isn't just hypothetical; it's a reality many of my peers and I have faced. We're left asking ourselves, "Whose interests are these contracts really serving?"

My perspective shifted dramatically when I encountered the concept of no contracts and no commitments within processing agreements. The stark difference lay in the approach—a processor willing to operate without the safety net of a long-term contract sends a powerful message about their confidence in the quality of their service and their commitment to meeting a merchant's needs.

The absence of a contract doesn't mean the absence of agreement or understanding; rather, it emphasizes a dynamic relationship where service providers must continuously prove their value and adapt to the merchant's evolving requirements. This model fosters a healthier, more sustainable partnership between merchants and processors, where mutual benefit, rather than mutual obligation, is the driving force.

From my experiences, embracing a processing agreement without a long-term contract has not only liberated my clients from the restrictive bounds of unsatisfactory agreements but has also empowered them to demand and receive the service level that they deserve. This approach, I believe, rectifies the imbalance, placing the merchant's needs and satisfaction back at the heart of the processor-merchant relationship.

The Power Shift: Drafting the Deal

Reflecting on my experiences and the collective wisdom of fellow business owners, I've come to realize the significant advantage of having the merchant take the lead in drafting the processing agreement. This shift in power from the processor to the merchant is more than a mere procedural change—it represents a fundamental realignment of interests, ensuring that the services provided are genuinely in sync with the merchant's needs.

Historically, the common practice has been for processors to present their standard contracts, filled with terms and conditions that often favor their interests disproportionately. It's an approach that, frankly, leaves much to be desired from a merchant's perspective. They find themselves navigating a maze of clauses that don't always reflect their operational realities or growth trajectories. This imbalance doesn't bode well for a relationship that should be built on servicing the merchants.

In envisioning a different approach, where the merchant drafts the agreement, the dynamics of the relationship undergo a transformative shift. Such an arrangement empowers the merchants to articulate expectations, needs, and concerns from the outset. It allows them to define the parameters of service quality, response times, fee structures, and support levels that align with their business operations and objectives.

This power shift is not about tilting the scales unjustly; rather, it's about fostering a partnership that recognizes the expertise and insights merchants bring to the table. They know what they need. Be it a specific rate, or a particular function in equipment. By taking the lead in drafting the agreement, they can ensure that the processor is fully aware of what it takes to support that business effectively. It becomes a collaborative effort to tailor the services to specific needs, rather than a one-size-fits-all approach that may not serve anyone well in the long run.

Is there a scenario where the processor truly understands the peaks and troughs of your business cycle, the importance of timely support, or the critical nature of transparent fee structures? There should. This understanding can only come from a relationship where the merchant's voice is not just heard but is instrumental in shaping the terms of engagement.

In this reimagined partnership, both parties stand to gain. We, as processors are motivated to deliver on promises, knowing that our performance is the basis for ongoing engagement. And in turn, the merchants enjoy the confidence and peace of mind that comes from knowing their processing agreement genuinely supports their business success. It's a win-win that starts with acknowledging the power and potential of letting the merchant draft the deal, or at least run point on what needs to be in that deal.

Earning the Business: The Month-to-Month Mandate

The concept of no contracts and no commitments revolutionizes the way I, as a processor, build my relationship with business owners. This revolutionary approach mandates that processors must earn that business continually, every single month. Adopting this strategy has initiated a transformative evolution in my approach to customer relations and service provision.

Without the fallback of a long-term contract, processors are on notice, striving to deliver not just satisfactory but exceptional service that should align with expectations and business needs. It's a dynamic that compels us to be more attentive, more responsive, and ultimately, more invested in the success of client operations. They know that if we falter, they have the flexibility and freedom to seek alternatives without the dread of punitive financial repercussions. This keeps the relationship honest and performance-driven. And means that every month, merchants have the opportunity to assess whether their current processor is still the best fit for their business or if their needs have outgrown their service. This isn't about fostering a contentious environment or ushering in continuous switching, but about ensuring a level of service and support that truly matches the evolving landscape of business operations.

The month-to-month mandate doesn’t just benefit the business owner; it also incentivizes the processors to elevate their game, innovate, and tailor services more closely to the needs of their clients. It’s a relentless pursuit of excellence that, in the end, benefits both parties. This model, devoid of long-term contracts, ensures that business relationships are always propelled by mutual satisfaction and success, not by the complacency that can come with contractual obligations. In my professional opinion, a no risk agreement is better for everyone in the processing conversation.

Aligning with Merchant Priorities and No Contracts

With the absence of binding contracts, merchants enjoy more flexibility and a greater sense of control over their business operations. This no-contract model allows for enhanced negotiation of processing agreements, which ultimately serves the best interests of the merchant. By putting the power back in the hands of the merchant, businesses can focus more on customer service, innovation and growth, rather than being bogged down by contractual restrictions.

Although not a new concept, no risk agreements are still not effectively communicated to the merchants who could benefit from knowing about the available option. We, at Covrus are on a quest to change that narrative.

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