Article's Authored by Mr. Rianda

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Danger! Rough Seas Ahead

From the perspective of a sales agent, the most important contract that he or she has to enter into is always the agent agreement with the credit card processor that pays those monthly residual payments. Over the years I have been helping sales agents enter into such contract and I have learned there are a number of warning signs that indicate a higher likelihood that the sales agent’s residuals could be at risk for future unfair termination. Below are a few of those warning signs that you should look out for in agent agreements:

Taking Risk:

As a sales agent, you should never accept risk for merchant chargebacks, unpaid merchant fees or any other merchant losses that occur through no fault of your own. Sometimes I find in an agent agreement that the card processor expects the sales agent to pay for all such losses or to pay for such losses in an amount equal to the profit percentage paid to the sales agent. If you agree to take risk and there is a loss of hundreds of thousand of dollars (which happens frequently in our industry), you place your residuals at risk to pay those losses which could effectively mean the termination of your residuals without you having done anything wrong.

The standard in the industry is that as a sales agent, you should be able to find lots of partners that will pay you anywhere from 50-70% of the profits derived from the merchants without asking you to take risk. The exception to this would be if the sales agent committed fraud or did something else to cause the merchant losses. In addition, some sales agents will take risk in order to get a merchant boarded that processor otherwise would not be willing to board. But other than those limited exceptions, the agent agreement should not hold that you have to take risk for merchant losses.


Exclusivity is another red flag that could indicate you need to find another business partner. Many years ago all processors expected their sales agents to be exclusive to the processor, but now that is almost never the case. I find that many agent agreements I see are exclusive to begin with but in almost all circumstances, the processor will allow the agreement to be changed to a non-exclusive relationship. I estimate that less than 5% of the agreements I review end out with the sales agent exclusive to the processor when the agreement is signed and this is usually because the new agreement is taking the place of an agreement the sales agent signed many years ago that was an exclusive arrangement. If you ask to have a non-exclusive agreement and the processor says no, it’s probably time to find a different partner.


Minimum production requirements also tend to indicate that there is some potential threat to the residuals. What I mean by a minimum production requirement is that in the agent agreement it states that you as a sales agent have to send a certain number of approved applications to a processor in order to be paid your residuals. For example, the agent agreement will contain a provisions that states if you fail to provide at least 5 approved merchants to the processor per month then all residuals are terminated. Again, this is not standard in the industry and no sales agent should agree to something like this. That is not to say that production requirements are not appropriate for determining the level of your compensation, such as increasing the percentage of profits you are paid if you send more merchants to the processor. Many processors pay you more if you send them more business. But, you should never be subject to termination of your residuals if you quit sending business to the processor.

No Flexibility:

Another warning sign of potential risk to your residuals can occur during the negotiation process of the agent agreement. Typically a sales agent will come to me with an agent agreement received from a processor. The sales agent now wants me to make redlined changes to the Word document of the agreement in order to protect the sales agent’s interest and mainly to ensure continued payment of the residuals. The first warning sign is if the processor will not provide a Word version of the agreement, which 95% of them will do. If they will only provide a pdf or other non-modifiable agreement, it is a sign in my experience they will not allow changes to the document.

If the processor also rejects a significant portion of the requested changes, this is also a bad sign. I find that for most sales agent agreements I modify on average around 60-80% of the changes are accepted. When the processor comes back and says they will not allow any changes to the agreement or they allow say only 20%, I am usually advising my client to find another processor of which there are many to choose from.

Too Much Flexibility:

As a counterpoint to the last example, if the processor accepts all the changes that are suggested in an agent agreement I also start to worry. I usually ask for a few things that I don’t expect to get accepted by the processor without some modification by the processor. When a processor accepts all or almost all the requested changes without exception, I have found that often times these type of people may not care what the contract states because they have no intention of honoring the terms of the contract. The process of negotiating an agent agreement requires a bit of give and take on both sides. If one side is not doing that there could be issues in the future.

If you see one or more of these warning signs it might be a good idea to try to find another partner. We are lucky in our industry that there are a lot of companies out there that are dying to get quality sales agents. If you make sure up-front your partner is reputable, you can avoid stormy seas in the future.

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