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Responding to increased frequency of having to provide customer refunds after a merchant has gone out of business, credit card processors have been requiring some merchants to set aside a cash reserve. Some processors have gone so far as to hold back funds from approved transactions until the cash reserve requirement is met. With no shortage of reminders to watch the fine print in your credit card processing statement, here are 5 tips on credit card processing companies.
Business Week reported that due to increased commercial bankruptcies, at least two large credit card processors, First Data and Elavon, have demanded that some businesses maintain a cash reserve in order to continue accepting credit card payments. Most agreements between merchants and their processing company give the processing company the right to insist on a cash reserve. Some allow the processing company to withhold money from approved transactions until the reserve amount is met.
The problem credit card processors cite is being left holding the bag after a purchaser demands a refund but the merchant has already gone under. Normally, after a customer demands a refund, their credit card company gets it from the processor, who in turn takes it from the merchant's account.
The solution, however, has some businesses being forced to go without one to two months worth of transactions.
With another reason for small businesses to hawk-eye their credit card processing statements, here are 5 tips regarding credit card processors (culled from these 7 tips compiled for the hotel industry but applicable to all small businesses):
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