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The Green Sheet Online Edition

February 11, 2008 • Issue 08:02:01

Residual report review

By Jeff Fortney
Clearent LLC

Residual earnings are the lifeblood of the industry. And most payment professionals want their residuals to escalate and become the backbone of their businesses. With this goal in mind, the review of residual reports should be a top priority - each month.

However, it is all too common for merchant level salespeople (MLSs) to do, at best, a cursory review of the reports they receive. When asked why, they commonly offer the following responses:

  • The data is overwhelming; if I'm satisfied with the total, I move on.
  • I honestly don't know what to look for.
  • I know I'm supposed to receive a share of the collected income; if it looks right, I'm OK.

Behind each of these comments is a common theme: Residual reporting is often confusing, and many agents do not understand what data should be examined. But reviewing reports can be made easy, even if you do not have a degree in mathematics.

MLSs can take several simple steps to identify basic concerns, simple math errors or even confusion in their program specifics - in other words, confirm that your understanding of your share percentage is actually what you are paid.

I suggest noting your questions as you review the data and holding them for a single phone call or meeting after you have completed your data analysis. This may save everybody a little bit of time and, most importantly, as you grow more comfortable with the data, you will start to answer your own questions.

What to get

Reports come in various formats. Raw data files, Excel spreadsheets and online reporting are the most common. All are electronic in nature. MLSs must be able to read their reports and have the right to request to receive data in a format they can read. For example, if you do not have Excel, request a report in PDF format.

Each report should provide common categories broken down to the merchant level. The categories may have different names, but they should include the following:

  • Merchant card volume
  • Merchant transaction count (by card type)
  • Gross merchant fees collected (preferably broken down into individual fee categories)
  • Merchant processing expenses (broken down per fee category)
  • Total interchange
  • Amount earned per merchant

There should also be portfolio totals for each category.

What to do

Begin by analyzing the total amount paid to you. Divide the total earned by the gross collected minus your processing expenses. This should equal your expected revenue share percentage.

Divide the total dollars earned by the total bankcard processing volume. This will establish the basis point return on your portfolio. This number is important when comparing your month-to-month earnings.

Simply stated, even though your earnings may be growing, unless the basis point return stays within an acceptable range month to month, there may be an error or a concern that needs to be addressed.

I also suggest that you proof the processing expenses. Ask yourself simple questions such as:

  • Do they match what I perceive my costs to be?
  • Is there an expense I am being charged I do not understand?

Calculate the basis point return on every merchant, and look for any value that appears to be out of your portfolio's norm. You may find that a merchant may be priced too high, or conversely, priced incorrectly. This calculation also helps to identify any merchant who may be missing a fee or whose calculation contains a mathematical error.

Next, select a random sample of your merchants. This should be merchants of all sizes, not just your biggest volume merchant or your highest or lowest profit merchant.

Once identified, examine each individual merchant's billings. If you have access to merchant statements or online reporting, use these resources as proof instruments to find out whether you are receiving credit for all the revenue collected. If you cannot affirmatively answer this question, you likely have a "disconnect" between the processor's perception of your program and your perception.

This might have a serious impact on your income and could require you to reconsider your choice of partners.

After identifying all your concerns, contact your processor. Time is of the essence, as most contracts only allow a finite period for corrections to reporting. In most cases, you only have 30 to 60 days to submit questions or correction requests.

It's also important to remember to save your work to a separate electronic file or on paper. Keep the data for analyzing future growth trends and for determining if any concern or error is consistent month to month.

With the huge variances in programs offered to MLSs, the importance of a thorough, ongoing review cannot be overstated. You should trust your processor, but also verify. It is your money after all. end of article

Jeff Fortney is Director of Business Development with Clearent LLC. He has more than 12 years experience in the payments industry. Contact him at jeff@clearent.com or 972-618-7340.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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