Applying for a high risk merchant account can be a complex and challenging process. Unlike traditional payment processing applications, high risk applications require extensive documentation, detailed business information, and careful preparation. Many businesses make critical mistakes during the application process that result in delays, higher fees, or outright rejections. Understanding these common pitfalls and how to avoid them can significantly improve your chances of approval and help you secure better terms for your high risk merchant account.
Pre-Application Mistakes
Insufficient Research and Preparation
One of the most common mistakes is rushing into the application process without proper preparation. Many businesses fail to:
- Research processors that specialize in their industry
- Understand their risk classification and reasons
- Gather all required documentation in advance
- Prepare detailed business plans and financial projections
- Review their credit reports and address any issues
Solution: Take time to thoroughly research high risk processors, understand your industry’s specific challenges, and prepare comprehensive documentation before beginning any applications.
Applying to the Wrong Processors
Not all high risk processors are created equal. Many businesses waste time applying to processors that:
- Don’t work with their specific industry
- Have minimum volume requirements they can’t meet
- Specialize in different risk categories
- Have geographic restrictions
- Lack necessary compliance capabilities
Solution: Create a targeted list of processors that specifically work with your industry and business model. Quality over quantity is key – it’s better to apply to fewer, more suitable processors than to spray applications everywhere.
Documentation and Information Mistakes
Incomplete or Inaccurate Applications
High risk processors require detailed, accurate information. Common documentation mistakes include:
- Leaving fields blank or providing incomplete information
- Submitting outdated financial statements
- Providing inconsistent information across documents
- Failing to disclose previous processing history
- Omitting required supporting documents
Solution: Create a comprehensive checklist of all required documents and information. Double-check all entries for accuracy and consistency before submission.
Poor Financial Documentation
Financial documentation is crucial for high risk applications. Mistakes include:
- Submitting unaudited or poorly prepared financial statements
- Failing to provide sufficient bank statements
- Not explaining unusual financial patterns or transactions
- Omitting tax returns or providing incomplete tax information
- Failing to demonstrate positive cash flow
Solution: Work with a qualified accountant to prepare professional financial statements. Provide detailed explanations for any unusual financial patterns or circumstances.
Inadequate Business Plan Documentation
Many applicants underestimate the importance of a comprehensive business plan. Common mistakes include:
- Providing generic or template business plans
- Failing to address industry-specific risks and challenges
- Not demonstrating market knowledge and competitive analysis
- Omitting detailed marketing and customer acquisition strategies
- Failing to show realistic financial projections
Solution: Develop a detailed, industry-specific business plan that demonstrates your understanding of the market, risks, and growth strategies.
Disclosure and Transparency Mistakes
Hiding or Minimizing Risk Factors
Attempting to hide or downplay risk factors is a critical mistake that often backfires:
- Not disclosing previous merchant account terminations
- Hiding poor credit history or financial difficulties
- Minimizing chargeback or fraud issues
- Failing to mention regulatory problems or legal issues
- Understating transaction volumes or average ticket sizes
Solution: Be completely transparent about all risk factors. Processors appreciate honesty and are more likely to work with businesses that are upfront about challenges.
Misrepresenting Business Model or Industry
Some businesses try to misrepresent their industry or business model to appear lower risk:
- Claiming to be in a different industry category
- Understating the percentage of high-risk products or services
- Misrepresenting customer demographics or geographic distribution
- Hiding subscription or recurring billing components
- Downplaying international transaction volumes
Solution: Accurately represent your business model and industry. Processors will discover misrepresentations during underwriting, leading to immediate rejection.
Application Strategy Mistakes
Applying to Multiple Processors Simultaneously
While it might seem logical to apply to multiple processors at once, this strategy often backfires:
- Creates confusion and potential conflicts between processors
- May be viewed as desperate or high-risk behavior
- Can lead to inconsistent information across applications
- Makes it difficult to negotiate terms effectively
- May trigger additional scrutiny from underwriters
Solution: Apply to processors sequentially, starting with your top choice. Only move to the next option if the first application is unsuccessful.
Unrealistic Expectations and Timeline
Many businesses have unrealistic expectations about the application process:
- Expecting immediate approval like traditional processing
- Underestimating the time required for underwriting
- Not planning for potential delays or additional information requests
- Expecting traditional processing rates and terms
- Not budgeting for setup fees and reserves
Solution: Plan for a 2-4 week application process and budget for higher fees and reserves. Have realistic expectations about pricing and terms.
Communication and Follow-up Mistakes
Poor Communication with Underwriters
Effective communication with underwriters is crucial but often mishandled:
- Failing to respond promptly to information requests
- Providing incomplete or unclear responses
- Being defensive or argumentative about risk factors
- Not maintaining professional communication standards
- Failing to follow up appropriately on application status
Solution: Maintain professional, prompt, and complete communication throughout the process. View underwriters as partners rather than adversaries.
Inadequate Preparation for Underwriter Questions
Many applicants are unprepared for detailed underwriter questions:
- Not understanding their own business metrics and KPIs
- Being unable to explain industry-specific processes
- Lacking knowledge about compliance requirements
- Not having clear answers about risk mitigation strategies
- Being unprepared to discuss future business plans
Solution: Prepare thoroughly for underwriter calls and meetings. Know your business inside and out, including all metrics, processes, and compliance requirements.
Technical and Operational Mistakes
Inadequate Website and Business Presence
Your online presence significantly impacts your application:
- Having an unprofessional or incomplete website
- Lacking clear terms of service and privacy policies
- Missing or inadequate contact information
- Having broken links or non-functional features
- Failing to display proper business credentials and licenses
Solution: Ensure your website is professional, complete, and compliant with industry standards. Include all necessary legal pages and contact information.
Poor Risk Management Preparation
Failing to demonstrate adequate risk management capabilities:
- Not having fraud prevention measures in place
- Lacking chargeback prevention strategies
- Missing customer service protocols
- Not having proper record-keeping systems
- Failing to demonstrate compliance capabilities
Solution: Implement and document comprehensive risk management procedures before applying. Show processors that you take risk management seriously.
Pricing and Terms Mistakes
Focusing Only on Rates
Many businesses make the mistake of focusing solely on processing rates:
- Ignoring other important fees and costs
- Not considering the total cost of processing
- Overlooking contract terms and conditions
- Failing to evaluate service quality and support
- Not considering long-term relationship potential
Solution: Evaluate the total package, including rates, fees, terms, service quality, and long-term partnership potential.
Not Negotiating Terms
Many applicants accept initial terms without negotiation:
- Not asking about rate reductions based on performance
- Accepting unnecessarily high reserves
- Not negotiating contract length or termination terms
- Failing to discuss volume-based pricing tiers
- Not requesting specific features or services needed
Solution: Everything in high risk processing is negotiable. Don’t be afraid to discuss terms and ask for modifications based on your business needs and risk profile.
Post-Approval Mistakes
Poor Account Management
Even after approval, many businesses make mistakes that jeopardize their accounts:
- Not maintaining the business model described in the application
- Failing to notify processors of significant business changes
- Not monitoring chargeback ratios and other key metrics
- Ignoring processor communications and requirements
- Not maintaining proper documentation and record-keeping
Solution: Treat your merchant account relationship as an ongoing partnership. Maintain open communication and comply with all requirements.
Best Practices for Success
Create a Comprehensive Application Strategy
- Research processors thoroughly
- Prepare all documentation in advance
- Be completely transparent about risks
- Focus on demonstrating risk management capabilities
- Maintain professional communication throughout
Build Strong Processor Relationships
- View processors as partners, not just vendors
- Maintain open and honest communication
- Comply with all requirements and recommendations
- Provide regular business updates
- Work collaboratively to address any issues
Continuous Improvement
- Monitor key performance metrics regularly
- Implement processor recommendations
- Stay current with industry best practices
- Invest in fraud prevention and risk management
- Plan for long-term relationship success
Conclusion
Avoiding these common mistakes can significantly improve your chances of securing a high risk merchant account with favorable terms. The key to success lies in thorough preparation, complete transparency, professional communication, and realistic expectations. Remember that high risk processing is about building long-term partnerships with processors who understand your industry and are willing to support your business growth. Take the time to do things right from the beginning, and you’ll be rewarded with better terms, faster approval, and a stronger processing relationship that can support your business for years to come.
By understanding and avoiding these pitfalls, you can navigate the high risk merchant account application process more effectively and secure the payment processing solutions your business needs to thrive in challenging industries.