How to Cancel a Merchant Account

Canceling a merchant account shouldn't be so difficult, but it often is. Read on to learn how to exit your processing agreement as smoothly as possible.

Maybe you found a better provider or closed your business. Now, you're looking to cancel your merchant account.

This is one of the biggest headaches for small business owners. A lot of merchants get completely blindsided by hefty termination fees.

So, what rights and obligations do you have when it comes to canceling? Here are some tips to successfully cut ties.

How to Cancel with No Termination Fees

The best solution is to avoid the early termination fee (ETF) before entering a merchant account agreement. You can pre-negotiate it out of the contract. Or better yet - look for a merchant account provider with no long-term contract or ETF.

A lot of providers now offer month-to-month billing. So, there's really no reason anymore to lock yourself into a long contract with strict terms. Some good examples are Helcim and Payment Depot.

But if you already have an account with a contract (or you're not sure), then read on.

Reasons You May Want to Cancel

There are lots of reasons you may want to cancel your account before the contract ends. The good news is that you may have some options depending on your reason.

• The provider increased rates.
  If your provider recently increased processing rates, you may have a window to cancel the contract without incurring an early termination fee - per state law or your service agreement.

• You're closing your business.
  Some providers will waive the ETF if you're closing your business. If it's not stated in the contract, it doesn't hurt to talk to your provider about your options.

• You want to switch to another provider.
  In this case, you may not have many options. If you found a lower rate elsewhere, some providers may be willing to match rates if you provide a quote. Some may let you exit if they cannot match. But in most cases, you may just need to pay the ETF as per the contract.

Now, let's get onto the step-by-step guide of how to cancel your merchant account.

1. Review Your Merchant Account Agreement

It's super important to review the agreement before signing, so there are no surprises. But if you forgot the terms (or didn't review), take it out now and read what it says about cancellation.

Pay attention to things like:

• Early termination fee (ETF)
  
• Liquidated damages
  
• Equipment restocking or buyout fees
  
• Equipment lease early termination fee

If you have cancellation fees in the contract (or worse - liquidated damages), then you may want to rethink if canceling is worth it.

2. Go Over Recent Processing Statements

If your contract does have termination fees, see if you are eligible to get them waived. This requires you to scrutinize recent processing statements.

Has the provider increased rates? Many states have laws saying that if your rates increase during your contract term, you can cancel within a certain number of days with no penalty.

A lot of processing providers also have a clause in the contract that lets you cancel if rates increase. However, this is usually just 30 days, so it's a narrow window.

3. Call Your Provider

Next, you'll want to call your provider and verify the cancellation terms. You may have a dedicated account manager you can speak with. If not, then you'll have to talk to general customer service or cancellation department.

It's important to write down the details of the call. Be sure to note down:

• The agent name and ID number
  
• Call reference number
  
• Information given to you
  
• Date and time of call

4. Don't Be Afraid to Negotiate

The termination fee is decided by the merchant account provider. So the agent could waive the fee for you if they feel that it's warranted. Even if they can't completely waive it, any reduction will help.

If you're canceling because you feel that you've been misled about the fees or didn't receive the proper service, you can ask to speak to a manager. Someone higher up could have more say.

Whatever the case, be polite and calmly explain the situation. It won't help to be upset and emotional.

5. Write an Official Letter of Cancellation

Providers usually require an official cancellation notice stating that you wish to close the account. You need to send it by email or fax to the correct address.

Some companies provide a form that you just need to fill out. If your provider doesn't have one, then write one yourself so that you have a cancellation notice documented in writing.

The letter should contain:

• Merchant account provider name and address
  
• Your name
  
• Your merchant ID number
  
• Your business name
  
• Your business address
  
• Your business phone and email numbers
  
• Effective date of cancellation
  
• Signature and date of signing

Note that your contract may require advanced notice within a certain number of days. Usually, it's 30 - 90 days in advance. And you must still process and pay all the fees during that period.

6. Return Equipment

If you received free equipment with your contract, be sure to return it. There may be a restocking fee or in some cases, a price to buy out the equipment.

The representative should give you clear instructions for returning, including where to mail it to.

If you leased equipment, this could be a huge headache. Even if you return the leased equipment, it doesn't necessarily mean you can get out of your lease. We'll talk more about it later.

7. Confirm the Cancellation

If you didn't get cancellation confirmation from your provider, make sure to call them up and confirm it.

You should get something in writing confirming your cancellation and receipts for the returned equipment.

8. Monitor Your Bank Account

Even after cancellation, keep an eye out on your bank account to make sure you're not still being billed any service or equipment fees. It may take one billing cycle to settle any batches and charge the last of the fees.

If the company is still charging you, you have the right to dispute unauthorized charges.

After all outstanding fees are paid, you can close the attached checking account if you want. That removes the processor access so they can no longer withdraw money from it.

How to Cancel an Equipment Lease

If you have an equipment lease, this can be very tricky.

Equipment leases are usually a separate contract from your merchant processing agreement. It may even have a different contract length. Even if you can cancel the main contract, you could still be stuck with the equipment lease.

Unfortunately, equipment leases are notoriously hard to cancel. You may have the option to buy the equipment outright. But in the worst case, you can be required to pay all the remaining amount, even if you return the leased equipment.

If you're switching providers, see if it's better to just keep your equipment lease. Many machines can be reprogrammed to work with another processor. So if you can't get out of the lease, then you may as well continue to use it for the rest of the lease.

What Happens If You Don't Pay the Early Termination Fee?

Even if you feel that the early termination fee is unfair, it's not a good idea to just not pay it.

If it is part of your contract and if you don't pay, the processing company can take legal action against you. It can be reported to the credit bureaus and damage your credit.

Even more than that, they can place you on the Terminated Merchant File. This is basically like a blacklist against merchants. Being on this list can prevent you from getting another merchant account in the future. Then you'll really be in big trouble.

Bottom Line

It's easy to cancel your merchant account. However, if you do have an early termination fee in the contract, you will most likely have to pay to exit (except in certain circumstances).

If you can't get the ETF waived, think about whether canceling is worth it. If you found another provider with much lower rates, then you can evaluate if the savings will make up for the ETF in the long run.

Moving forward, it's best to use a processing provider with no contract. This gives you the flexibility to cancel at any time you want. Here are some of our favorite providers that don't charge an early termination fee.