While most credit card processing companies have a clause stating they will charge an early termination fee, there are ways to avoid them. If you’re a merchant and you need to cancel a contract early, the early termination fee (or ETF) is a way for the credit card processing company to help recoup the costs they faced in setting your account up: obtaining the account number, credit checks, collecting documentation, programming and shipping equipment, installing equipment, training and maintaining tax records for the processing account.
Chances are, you might not have taken note of this fee when you first signed the contract because you were looking at the projected savings, but most every contract has them, and, if you choose to cancel, it can be charged to your business. However, a good credit card processing company will be more than willing to work with you in the case of an emergency and, in some cases, they may waive these fees all together--especially if you are a long-time customer or someone they would consider doing business with again in the future.
But, before you attempt to avoid the cancellation fee altogether, it’s important you understand that there is a real reason why the processing company is attempting to charge you. Credit card processing companies make their money off of the volume of accounts they have, not the transaction fees they charge. It’s a very low profit margin business. While it may sound somewhat trite, early termination fees exist because they have an actual purpose: to help the processing company cover their losses. It does cost them time, labor, and money to get a contract setup, and if the contract is not able to run the intended length of time, they run the risk of losing money. The cancellation fee is there to help protect them from that risk. After all, imagine what would happen if every client were allowed to just freely cancel their contracts early without penalty. The credit card processing company would quickly go under.
Therefore, the first real use of an early termination fee is to encourage clients to finish out their contract period if it fits within their budget. Otherwise, it is there to protect the processing company from potentially losing money on the contract.
Chances are, if you’re nearing the end of your contract, a processing company will be more likely to work with you on the early termination fee than if you’re just a few days, weeks, or months in. That’s because they have already profited enough from your contract to cover the setup fees and they could likely justify waiving the fee for you, depending on your relationship with the company.
In fact, if you are trying to see if your cancellation fee can be waived, here are some considerations the credit card processing company will make:
- How long have you been working with them?
- How long has your contract been running, and when is it set to expire?
- Why is the contract being terminated early?
If you sit down and speak with a representative at the credit card processing company and let them know that the situation you're in is less than ideal, they will be more likely to give you leeway. If they don't completely waive the fee, it is still worth sitting down and speaking with them in most cases just to maintain a good business relationship. Velocity Merchant Services (VMS), for example, prides itself as being a fair and just company. One other topic that makes VMS standout is their personalized customer service.