Don’t run that $50,000 transaction!

When you sign up for a merchant account, you specify an expected average transaction size and an estimated monthly volume. These numbers work as a reference for your actual processing. Rarely will these soft limits cause a problem for your business unless you go and exceed them by what your processor would consider a lot. The two ways to exceed these limits are to either run a single, very large, transaction, or to run enough transactions that your monthly volume greatly exceeds the limit.

Now the title of this post ‘Don’t run that $50,000 transaction’ is for those businesses that specified a lower amount and all of a sudden they have the need to process a very large transaction, or the just exceeded their estimated monthly volume and it is the second day of the month. Sometimes it happens only because the business is having a really good month.

This is something that happens all too often. A new or even an existing business will get a new merchant account, and looking at past history, or a well founded guess, will specify an amount that they think their average ticket and monthly volume will be. Then they go and greatly exceed on of the limits that they specified on their application.

Estimate a higher monthly volume and ticket size from the start:
A good processor will instruct a business owner to make a good guess on what they expect their volume and ticket size to be and to raise it, sometimes a lot. Depending on the type of business and how low the monthly volume was estimated, I have recommended people to raise their estimated volume more than ten times what their original was, in a few situations. For most businesses, doubling the initial guess is usually about right, unless a very large volume was initially assumed. Whatever the business may be, you should always specify a number much higher than what you actually think you will do to allow for growth. If you think you will do $5,000 per month, I would put down no less than $10,000. Think about where you want your business to be in two years and write down that number. The point here is to try and prevent ever reaching one of the amounts that you specify.

What happens when you need to make a $50,000 charge?
Situations like these must always be looked at on a case by case basis. If your normal transaction size is $48,000, then a $50,000 ticket shouldn’t be any problem. If your ticket size averages to be $55, then running a $50,000 transaction is a very bad idea. Looking at it from a risk standpoint (Which is what your processor will do), a $50,000 is enormous risk for a business averaging $55 per transaction, both for the business itself and the processor.

How Risk Works:
Risk is the likeliness of fraud and chargebacks on transactions that a business processes. Processors care about this because if you commit fraud through your merchant account or get a lot of chargebacks and cant pay the bill, the processor gets stuck with it. Risk is handled differently with each processor. Some have computer systems that flag batches for a later manual review, and some are completely reviewed by humans. Some allow businesses to exceed their limits, and some will temporarily or perminantly shut down the business’s merchant account once limits are exceeded. Whatever processor you are with, when you run large transactions or you exceed your monthly limit, a big red flag goes up. In fact, if any single day’s batch is higher than a specified amount, you can be 99% sure that it will be manually looked at by a human before the money is ever cleared to your bank account.

Having worked with more than nine processors and ISOs that handle risk, I can tell you that not all risk departments are created equal. Some will shut your merchant account down completely if you process 10% more than your estimated monthly volume. Some will automatically hold any transaction larger than your specified max ticket for several months. Some risk departments wont even tell you that your account is in risk, instead they wait for you to notice that your money is missing and call in. Once your money or account goes to the risk department, it can get really tricky to get it back in a timely manner. Remember when you were a kid, and your parents told you that you weren’t going to get something if you asked again. Well, risk works the same way when they are holding money. The more you ask about it, the more angry you are that they are holding it, and the more you need it, the less likely they are to give it up.

What to do when you need to run that transaction:
I highly recommend not running a large transaction in haste. If at all possible, call your processor and ask them if you can run the transaction. They may say it’s fine, they may want you to fax over a copy of the signed receipt or an invoice, they may just flat tell you not to run it. Whatever the case, calling your processor first is likely to prevent some major headaches.

If you decide to run it anyway:
Be prepared at the very least to not get your money on time. The first thing that will happen, is that the entire day’s batch will be held and manually reviewed. In the best case, they will release your money, after review, and may not even contact you. In the wost case, they will hold your batch and future batches until they resolve the situation with you. They can automatically refund the transaction to the customer, and ask you to collect payment via another method. They can hold the money from that batch for six months. They can shut down your merchant account completely, and hold your funds for six months. The point is, that if your processor sees too much risk in that transaction, the result is going to be much worse than if you would have called them before you made it, especially if they told you to not run it.

In conclusion:
Try to setup your account with the highest monthly volume and ticket size possible, and if you do need to run that huge transaction, or you start approaching the monthly volume that you specified, call you processor and see if you can work something out.