As many different types of merchant-service providers have learned the hard way, cutting corners by using a cut-and-paste approach to create merchant agreements can result in costly litigation. Independent sales organizations (ISOs), third-party processors, and payment facilitators must all make sure their merchant agreements are tailored to their particular business models and the types of merchants they service, as well as their potential exposure, depending on risk.
In his article “How Faulty Merchant Agreements Sink ISOs,” Partner Eugene Rome discusses the problems associated with using outdated merchant agreements, many of which read as though they were drafted in the 1990s. Mr. Rome writes, “Not surprisingly, such cut-and-paste jobs are often missing contractual terms important to protecting the service provider in connection with high-risk merchants operating in a card-not-present environment.”
Mr. Rome also outlines several best practices for effective merchant agreements, including: printing the terms and conditions in a format that is easy to read; sending the complete terms and conditions to the merchant along with the merchant application; having the merchant initial each page of the merchant package; obtaining the merchant’s signature on both the application and the terms and conditions; and using an electronic document-management and signature service for all merchant agreements.