Wednesday, September 07 2022
Want to understand the process for selling the merchant accounts portfolio? Maybe you want to know the policies of credit card processing sales programs when it comes to deciding merchant account residual buyout? Well, whatever your query is, this guide will definitely solve it.
We will discuss tons of useful things in this article which will help you have a solid and fully secure exit strategy if you are starting your career as a merchant services agent. You will also learn things that will help you sell your portfolio for a better price. So with that said, let's begin:
What is a Merchant Account Portfolio?
If you don't know, your merchant account portfolio is actually the product of your years or months of selling merchant accounts. This simply means that the number of accounts you have sold till now will be in your merchant account portfolio. However, these will only be the active merchant accounts and not the ones that canceled the services for any reason.
We will discuss the merchant account portfolio throughout this guide you need to understand that it is a set of all the merchant accounts that are currently active and earning you some merchant account commission on a monthly basis.
So with that said, we need to understand what goes into selling your merchant account portfolio if you decide to make an exit for any reason. So to know this, you will need to:
Ask These Four Key Questions:
Ask if You Own the Residuals:
To know if or how you can sell your merchant account portfolio, you need to reach out to your merchant services ISO program and ask them about it. You need to ask them that do you even own your portfolio or not.
There are some credit card processing agent programs that do not let the merchant services agent own the residuals in their portfolio. This means as long you keep working for them, you are getting the income, but as soon as you try to make an exit, the portfolio will be taken over by the company.
There will be no one offering you merchant account residual buyout if you decide you leave, and you cannot reach 3rd parties as well. This is what some merchant services reseller programs do, so you need to first ask yours if you can even sell your portfolio or not.
What Will Happen if Something Happens to Me?
If the ISO partner program says that 'yes you can sell the portfolio,' then it's good news, but your job is not over. You will have to further drill them down and ask a few very important questions to ensure you are fully secured and have a solid exit strategy in case you need an exit in the future. So the second question that you need to ask is what will happen to my residuals if something happens to me?
This means if a merchant gets into an accident and is not able to work for a long period of time, what will happen to their residuals? This is important because you do not want to work with someone who doesn't pay you your residuals if you are not maintaining a certain number of sales per month. There are many credit card processing sales programs that will not pay you the residuals if you are not fulfilling their monthly sales quota.
Also, some might even rip you off of your hard-earned residuals if you are not able to perform consistently throughout the months. In this case, you won't be able to sell your merchant accounts portfolio because the buyer needs surety of getting to keep all the residuals they are buying from you no matter how their sales numbers are.
If the processor says; yes, you will own your residuals whether you are working on more sales or not, then ask them to show it to you in the contract. Having this in writing inside the contract will help you safeguard your interests in the future, and you can show it to the potential buyers of your portfolio for their assurance.
What if The ISO Sells Out?
This is another very crucial thing to keep in mind because sometimes the people behind the ISO decide to make an exit and sell their company to a third party. Now, if this happens, you need to be sure that your own portfolio will not be affected by this. Most of the time, what companies do is that they will give you a very low multiple of the total amount you are making per month and give your portfolio to the company that they are doing business with.
In this case, you might get paid 10x to 15x of your total monthly income. So if you are making $10,000 a month and you sell it for the multiple of 10, then you just get $120,000. While the ISO might sell your portfolio for 20x to 25x to the company they are dealing with.
So this is something you need to keep in mind. You have to have it written in your contract that either you will get a good multiple like from 20-30X, or you will get to keep your portfolio even if they sell the company.
Can I Sell It To a 3rd Party?
Last but most important question to ask is whether you can even sell the portfolio to a 3rd party or not. Most of the processors would not allow you to sell your portfolio to a third party and would bound you to sell it to them instead. Now this kind of condition puts a limit to the potential of money you can get by selling your portfolio because getting 10 to 20 bids from people in your industry is better than just being bound to selling for a price that your processor agrees to.
Now we are not saying that you should not work with the Processor that bounds you to sell your merchant account portfolio only to them. There are two key factors that you need to look for to ensure that even if you sell your portfolio to back to the processor, you will make a good amount of money.
Understanding the Merchant Account Pricing and Attrition Guarantee:
As mentioned above, the price of the portfolio is decided by looking at different factors like the age of portfolio, the number of merchants, the size of merchants, consistency of income, attrition rate, and so on. So if the portfolio is old, let's say 2 years old, the size of merchants is big, the income is consistent, and the attrition rate is 10 percent then you will get a better price than the portfolio having 1 year age, varying income, and 20 percent attrition rate.
Now when you sell your merchant portfolio to someone, you are selling the future residual payments that portfolio will yield, which you don't know about. So the price will be decided on the current income. A multiple of current income will be offered to you, and you can get paid that amount if you sell.
As for the Attrition Guarantee, it is a guarantee that the merchants in your portfolio won't leave a few months after you sell it. This makes sense because if the buyer gets the portfolio and then most of the merchants cancel, they will suffer huge losses.
So what many buyers do is that they get an attrition guarantee, which means that they will pay a part of income multiple upfront, and spread the remaining over the months or years. So if the attrition rate is under the decided percentage, you will get your remaining multiples.
Over to You:
The things we have discussed above are not covered in almost any of the merchant services sales training, which is why it is imperative that you remember these things from the start.
Whether you are aiming to sell your portfolio later for a good merchant account residual buyout or not, you need to have an exit strategy from the beginning because who knows, plans change all the time.