What is a Merchant Agreement?

Merchant agreements are legal contracts that outline the terms of working relationships between retail merchants and various types of acquirers. In most cases, a merchant agreement governs the relationship between the merchant and a bank or some other type of credit card processor. This type of contract is necessary to establish what is known as a merchant account that allows the merchant to accept credit cards as payment for customer purchases.

There are a number of details found in the provisions of a merchant agreement. Along with defining how the processor will charge fees related to the use of the merchant account, the provisions will also address important matters such as how long it will take for the collected funds to be deposited into the merchant’s specified bank account. In some cases, the transfer of funds is almost instantaneous. More often, the process takes at least one business day before those funds are available to the merchant for use.

Within the terms of a merchant agreement, there is information regarding the rights and the responsibilities of both parties. For merchants, the terms help to set reasonable expectations of how the processor will provide services such as card processing, chargebacks and extension of rights covered in any warranties related to the processing equipment. The document will also identify which steps the merchant must follow in order to make the best use of those services. At the same time, the terms will also provide instruction for recourse on the part of the merchant, if the processor fails to deliver one of those services in accordance with the provisions found in the contract.

For the processor, the terms of the merchant agreement establish exactly what is expected of the merchant in terms of honoring payments on transactions that are processed. If the processor has extended a merchant discount rate to the client, either a bulk discount for processing a minimum number of transactions per month or as a discount that applies to every transaction conducted for the duration of the contract, this detail is also found in the pricing matrix of the document. Just as the text of the merchant agreement provides the merchant with recourse if the processor fails to abide by the terms of the contract, the processor can pursue courses of action specified in the provisions of the document in the event the merchant does not live up to his or her commitment.

Before signing a merchant agreement, merchants should make sure to read the document thoroughly. If any provisions seem somewhat vague or difficult to understand, clarification should be sought before entering into a contractual relationship. Should the processor be unwilling or unable to satisfactorily respond to those concerns, the merchant would do well to seek merchant services from a different processor.