By Alex Nouri
EFT Direct
Relationships between agents and acquirers should be true partnerships, but as the familiar sayings go: one should always hope for the best, but prepare for the worst, and what can go wrong, will go wrong. Part of preparing for the worst is being protected by a written contract. A properly worded agreement means both parties are serious and sincere about working together, and have no worries about what to expect from their business relationship.
I believe the agent agreement is the most important building block forming a relationship between a merchant level salesperson (MLS) and an acquirer. (Typically, an MLS signs such an agreement with an ISO registered with and representing an acquirer, not the actual acquirer.) However, the majority of ISO/MLS agreements I have reviewed over nearly 15 years in this business favor ISOs over MLSs, which is unfair. Following are lessons I have leaned, which I gladly share so you can avoid the pitfalls.
Do not sign an at-will employment contract. Approximately 20 states have legalized such employment agreements. This kind of agreement allows an employer to terminate an employee for any reason, at any time and without explanation. Will your acquirer do such a thing? The answer is the company probably could. It happens frequently in this and other industries. At this time, I know of only one acquirer that offers at-will employment. Avoid this employment situation, particularly if you could be terminated right before your residual income is to be vested for life.
Make sure the agreement you sign is nonexclusive, so you have the right to work with other acquirers. Make sure no performance quota is tied into your earnings, especially if it states that the acquirer will cease paying your residual commission after a specified period, usually one to three months, or if you do not close a deal or a minimum number of deals within a certain amount of time. You should be entitled to earn your residuals even when you want to take a break from working for whatever reason.
Thoroughly review the entire contract. Do not sign an agreement that states the acquirer will terminate you if you become insolvent or physically or mentally incapacitated. This sort of agreement offers an easy excuse to stop making payments to you. If a person is facing financial hardship and suffering, what would beating on an already wounded person accomplish except to sink the individual for good? Do not accept anything less than getting paid unless you commit substantiated fraud. A mere allegation should not result in automatic termination and forfeiture of your residuals. Only committing fraud that has been proven should give the acquirer the right to not pay you.
Also, the agreement should not give an acquirer the right to terminate the agreement "for cause" if you do not provide a service such as deployment of terminals. Although I don't think this scenario would occur often, do not leave anything to chance. All agreements have a clause called "First Right of Refusal," meaning if you want to sell the right to your residual income, you have to offer it to your acquirer before making an offer to a third party. Make sure the agreement gives the acquirer only 15 days to review the offer not, unlike a few agreements I have seen, 45 days or even longer. You want to get paid before a potential buyer changes his or her mind.
In case of a dispute, ask for the opportunity to cure or remedy the situation via a 10-day "cure period" that gives both parties ample opportunity to address the concern. If the proposed resolution is not satisfactory, the agreement should allow for mediation conducted by a fully independent third-party, to which both parties agree to submit their issues, yet whose decision will not be binding. If the mediation does not bear fruit, litigation must be an available option.
Nearly all acquirers do not allow MLSs to port their merchants to another acquirer upon termination of the agent agreement, whether for cause or without cause. However, I think joint ownership of portfolios may be appropriate. Negotiate its inclusion. Agents, who work so hard and are an important conduit in this industry, should have ownership rights.
My rationale is that if an acquirer is so confident that it will be able to deliver on all the promises it makes, and if it pays well and is transparent, no MLS will have reason to move a merchant portfolio to a new acquirer. It takes a lot of time to switch accounts. Time is money. Acquirers promise the world, but most do not deliver due to either one or a combination of leadership, managerial and technical shortcomings.
Ask for a clause that states that you will have the ability to move your merchants from or within, whichever you like best and suits both parties, (I suggest ideally) one year from the time you decide you would like to move them if you are not satisfied with the performance of the acquirer and if the issues have been “amply documented in writing and over time. This clause will not allow an agent to arbitrarily move merchants, while it will hold the acquirer accountable for any misgivings or poor performance by the acquirer.
When litigation is involved, both parties should agree the losing party will pay all costs associated with litigation. The threat of having to pay such costs can make both parties think twice before violating an agreement. Smaller MLSs, by far the majority of all agents, cannot afford to litigate, which often occurs in a state where they do not do business. However, smaller agents may find attorneys willing to represent them if the amount of damages sought is large enough, and if a claim is legally substantiated.
Also add a clause or addendum so your income is passed on to your beneficiary(ies) in case you die or become comatose, vegetative or otherwise incapacitated. It is fair to agree to a reduction of 5 to 10 percent of your gross monthly income for continued servicing of the accounts by the acquirer, but the income should not be lost if your beneficiaries cannot support your merchants. I have seen the stipulation that beneficiaries have to service accounts in a few agent agreements, which almost certainly guarantees the loss of income because most heirs do not do what we do.
Read your pricing sheet, also referred to as Schedule A or C, carefully. And keep in mind a couple of other old sayings: if it is too good to be true, it always is, and there's no such thing as a free lunch (even in the payments industry).
Remember, as an MLS, you are almost always the weaker partner in your relationship with your acquirer. Your position must be strengthened with a contract that protects you as well as the acquirer. Pay close attention to the agreement. Read every word of every sentence. Every contract should offer mutual protection. Ask for any verbal promise to also be put in writing. If someone doesn't offer that, be careful – and skeptical. It is your sweat income we are talking about here; you want to be sure that income becomes equity.
If any of the contract's terms need clarification or are subject to interpretation by others or a judge in a court of law, the meaning needs to be made clear before you sign the document. As long as you work hard and decently, no person or contract language should have the right to take your income away from you. Only a solid agreement will give both parties the protection they need so that arbitrary decisions cannot be made on a whim that will negatively impact the prospects of either party.
Should you have to face the stressful situation of being overtaken by an acquirer that has all the rights to its advantage, you will have no fair chance. You probably won't have the money to fight the company in the courts, especially in a different state, and you will lose if you do not have contractual protection. Take this matter very seriously.
Alex Nouri has been the President of EFT Direct, a sales and consulting firm based in Ann Arbor, Michigan, since 2000. Mr. Nouri has consulted merchants and acquirers so they could make better decisions and streamline their operations by becoming more efficient, reach greater profitability, and prepare for future. He can be reached at alex@eft-direct.com and via phone at 734- 477-7700.
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