High ticket requests and held funds – what businesses should know

                   Congratulations, you’ve just made a big sale! You run your customers credit card, wait tensely for those few seconds as the transaction processes, and… APPROVED! You smile and think to yourself “sales like this one are why I got into this business!”  Life is good.

The next day, you receive a call from your credit card processor’s risk department, saying they need documentation to verify the transaction before releasing the funds. “How can this be?” you ask “the transaction said approved!!??!!!?”

Welcome to the documentation request. Trust me – as an agent, I too cringe too when I see these notices come across.   However, with just a little bit of understanding on the process and cooperation, these can often be resolved quickly and efficiently.

Why am I getting a documentation request?

Any time you surpass your “approved high ticket” you can potentially trigger a documentation request. The “approved high ticket” is the amount your account has been underwritten to accept in a single transaction, and is requested when you initially apply for the merchant account. This is something a good sales rep should go over with you in the initial account set up. Setting the high ticket is a bit of a balancing act – you don’t want to go too low because you’ll constantly run into it, creating an excess of documentation requests. If you request too high of a ticket, underwriting may either give the account added scrutiny, or reject it all together if it is viewed as an excessive risk for the processor to assume.

High tickets are risky for the processor because bigger transactions are more likely to be disputed, and have a greater potential impact on the merchant if successfully disputed. That is, no one is going to charge back a $5 coffee and a donut, even if the coffee was terrible and the donut was stale. And even if they successfully charge back the $5 sale, there is no real financial risk there. But if that same person makes a $5000 transaction and the product or service is not up to their standards, they’re much more likely to dispute the sale. As well, there is a greater financial liability if they are successful in their attempt to dispute. Let’s say you’re a small business with $20,000 a month in sales volume.   The $5 chargeback you wouldn’t even feel, whereas a $5000 chargeback could be a disaster.

The anatomy of a transaction

When a transaction is initiated, your terminal connects over a system called interchange, which is the infrastructure by which your terminal essentially asks your customer’s bank “are $x available on account number xxxx-xxxx-xxxx-xxxx?”   If the answer is yes, you receive an authorization (approval) on the transaction. You receive a deposit in from your credit card processor, and the processor collects the funds from your customer’s bank.

Your processor, therefore, has no control over if the cardholders issuing bank approves or declines the sale. It does not know who the cardholder is, what their habits are, if they are authorized to use the card, and even if they are the legitimate card holder. All the processor knows is the transaction has been authorized, and then hope to receive payment from the card issuer (your customer’s bank).

Should a dispute arise, the card issuing bank will collect the funds back from the processor. The processor will then try to collect the funds back from the merchant. If they cannot, they suffer the loss on the dispute. While I’m sure you pay plenty in processing fees, the majority of those fees go to the issuing bank (“interchange fees” as they are called). Most processors work on a very slim margin, measured in hundredths of a percent relative to the transaction. One large chargeback can take years for the processor to recover from. So as you can see, processors have to be risk averse in order to be able to operate at such slim margins.

But why, what could go wrong?

The vast majority of the time a documentation request comes up, nothing is actually wrong.   It’s simply a matter of a sale that exceeded the approved high ticket amount..  Typically the processor just wants to make sure that 1) you have good documentation for the sale to fight any potential dispute 2) the payment is within the account criteria and 3) in the event of a large enough transaction, you have sufficient liquidity to stand the impact if it is disputed.  The good news is that when this is the case, usually the transaction can be quickly verified and funds released with a day or two.

But what could go wrong on a transaction? It’s part of your processors fiduciary responsibility to protect you from transactions that violate association rules and thereby would result in you receiving a chargeback. Here are just a handful of scenarios of I’ve come across:

Fraud: First and most obvious, someone could have given you a stolen credit card. I once had a client I called in the process of loading a $20,000 order to inform them that the transaction was taken on a stolen card. A bank verification was able to determine this before the customer suffered a significant loss.                     

Insufficient documentation: Here is one I see all the time. If you don’t have a signed copy of the receipt, usually you don’t have a leg to stand on when it comes to fighting the chargeback. Or you may have a signed work order, but you take a deposit on the sale that is non-refundable, but the work order doesn’t explicitly state that.   With a review of these documents, your processor can suggest additional verbiage to better protect your sale.

One department doesn’t talk to the other: Your client orders items they need to complete a job. But the accounting department didn’t authorize the sale.   Or someone provides their parent, spouse, partner, (etc) card number to pay for their services. With a cardholder verification, this can be determined before the goods are shipped or services rendered.

Future delivery: Your account is underwritten as a basic retail account. However, you take a large payment for 6 months worth of future orders that you have not yet fulfilled. Between now and the delivery date, anything could happen – your customer could face financial difficulty, could change their mind, or their situation could change and they no longer need your product or service. Or for that matter, any of the same could happen to you. Most processors require the goods delivered or service to be completed before funds can be released, with the exception of deposits or retainers.

Product not delivered: You keep 100 widgets in stock. Someone calls and orders 1000 widgets. You take the transaction, call your supplier to order 900 more to fill the order, and they are backordered and cannot fill your order for 2 months. The cardholder needs the product next week. While most businesses would do the right thing and refund until they could fill the order, others may try to hang on to the funds in the mean time, which is a recipe for a chargeback.

Services not covered by your business type: You own a pizzeria, and someone wants to buy one of your old delivery cars off you. They pay you by credit card, and the transaction goes through. However, you’re not an auto retailer, you’re a restaurant. The cardholder could successfully chargeback that transaction just based on a technicality.

Cash advancing: You’re a little short this month, so you run your own personal or business credit card through your terminal for $5000. This is known as cash advancing, and can result in termination of your merchant account, and of your credit card. If this is addressed and reversed, you can usually be absolved.

Product not as described: You sell a weight loss pill with a 100% guarantee to lose 20 lbs in 2 weeks.  A customer takes it and only loses 19 1/2 lbs.  They can dispute and win. 

As a business owner, what should I do?

Really, the only solution here is communication. If you receive a documentation request, respond to it – quickly.   I’ve have some clients who reply quickly with documentation and the funds reviewed and released same day and no delay at all from their normal funding timeframe. I’ve had others who refute the verification process.  Their funds sit on hold while they hem and haw, until eventually, they provide the requested documents. Only then does the review process begin.  

First and foremost, your processor has the responsibility to quickly notify you of a held sale. This could be as early as the day after the sale, but should certainly be by the following business day. If you are not getting notifications in this timely manner, then this is a problem with your processor.

Once you receive the request, you should:

Reply quickly: Provide your processor with whatever documentation is necessary. This may include:

Signed copy of the receipt – ensures the cardholder “participated in the transaction”

Signed copy of the work order / invoice – review terms of sale, items sold

Proof of delivery (if applicable)

Cardholder name, billing address, and home phone number – for bank and / or cardholder verification

Financial documentation – P&L reports and /or bank statements to prove the company has sufficient assets to cover the loss in the event the transaction does chargeback.

Know your high ticket: Being aware of your high ticket. If you process a sale in excess of your high ticket, contact your agent at the processor and send them over a copy of the invoice, signed sales receipt, and cardholder information. This is known as proactive documentation, and goes a long way to get the funds released.

Give it time: If you just signed up with a new processor, they are typically going to have tighter controls on your account at first than they will after you’ve established some history with them. Particularly if you are a newer business, or have a high average ticket. That being said, if the account was grossly misrepresented by your sales agent, then this may be an early sign of things to come.

Work with an agent (a good agent!), not a company: This isn’t a situation where you want to have to explain it from the top to a new rep each time you call in. Nor do you want to find out the documents you sent to a generic inbox were “missed” and no action has been taken.  Having a solid, knowledgeable, single point of contact can help you through the process.

Threats will get you nowhere: As difficult as it may be, refrain from the threats. Unless you have the Director of Risk Management or a senior VP on the line, the person you’re talking to does not have the ability to release your funds without the consent of a higher up. Your lawyer can’t help either, as you’ve agreed by signing the processing agreement that the processor has the ability to review sales prior to release. Leaving won’t help, because that will automatically trigger a 180 day hold on all funds (often plus a termination fee). But by having an agent working the case for you who knows the process, you’ll get a much speedier resolution than trying to fight it on your own. Typically an agent is paid a residual on your account each month, and if they want to keep getting paid, they better keep you happy and processing with them.

Worst case scenario: The worst case scenario is the processor could hold funds for up to 180 days, at which point the ability for the cardholder to dispute the transaction has expired. After that timeframe, the risk drops to zero and funds can be released. 

In conclusion, if you are having issues with held funds there are a few issues that can be at play. Did your processor underwrite your account incorrectly from the start? Are the sales your making in line with how your account is actually underwritten? Are you working with or fighting against the verification process? Or, is it simply inevitable that some transaction types are going to be held?

Feel free to contact us for a free consultation. Not only can we help you get set up properly going forward, but we’d be happy to review your current situation and let you know what we can do to help get your funds released.