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Reporting Legally

By Adam Atlas

Editor's note: In this issue of The Green Sheet, we have two articles under the column "Legal Ease." Anthony L. Ogden's article appears on page 84.

Anyone who has worked in the acquiring business for more than a month knows that revenue and residual reporting is as important to the ISO and merchant level salesperson as the check that comes with it.

In negotiating ISO deals, I've often had to modify language proposed by the bank or processor in order to improve on its reporting obligations.

Keep the following things in mind when negotiating the reporting clause in an ISO agreement:

Why Is Reporting so Important?

The best deal in the country is not worth the paper it's printed on without adequate reporting. If a processor promises to pay 80% of revenue received but does not give you the means to objectively calculate that revenue, you might as well have not signed any agreement at all.

Reporting is important because it informs you whether or not the bank or processor has provided what's entitled to you under your agreement.

Is Reporting Mandatory in the Agreement?

Believe it or not, some ISO agreements fail to state the obligations of the payor of residuals as to the reporting required.

I recommend against signing an agreement that does not at least have a general obligation on the part of the processor or bank to provide reporting on residual payments.

The agreement can state this obligation in either the body of the text or in the fee schedule. In either case, the contract should state it clearly and unambiguously. As is the case with every important clause in an agreement, it should be so clearly stated that your grandmother would understand it.

How Often Will Reports Be Published?

The best reporting will be Internet-based and provided in real time. The current industry standard is to receive no less than a printed report with each monthly residual check. The standard is, however, moving closer to real time, Internet-based reporting.

Did You Review Details Carefully?

Depending on your negotiating position opposite the processor or bank, you can negotiate various levels of detail in reporting.

In a nutshell, the reports provided should enable you to verify the accuracy of the residual payment made.

If the reports do not provide enough information for that purpose, then they are inadequate. For example, you should be able to determine the volume processed by each merchant in your portfolio as well as a general breakdown of the types of transactions (i.e. Visa, MasterCard, etc.).

Compare the wording of the residuals clause in the agreement to the reporting clause. These clauses are often worded similarly in respect to the amount of detail the processor or bank will provide.

Is the Report Intelligible?

The report should be easy to read and understand, whether it's online or in hard copy. If the bank or processor produces the report in a way that is complete but very impractical to use, then that defeats the purpose of having reporting in the first place. Make sure the report has a summary section followed by a breakdown of the details.

Do You Have the Right to Contest?

Always couple your right to receive reporting with the right to contest the amount of a residual payment based on the information in the reporting.

Most agreements give the ISO 30 - 90 days from the date it receives payment to contest the accuracy of a payment. Depending on your bargaining position vs. the processor's or bank's, you might be able to bargain for more time to contest a residual payment.

But make sure you monitor the timing of your review of residual statements in order to have enough time to contest the accuracy of a payment, if necessary.

Do You Have Audit Rights?

Depending on your bargaining position vs. a processor or bank, you might be able to obtain audit rights. Audit rights allow you to send an independent, third-party auditor to verify the processor's or bank's books. You would do this to obtain assurance that the processor or bank has paid you the correct amount. If you do obtain audit rights, expect to have a negotiation over who should pay for the auditor.

An ISO agreement usually covers reporting in one sentence. As you can see from the points raised above, you have a lot to think about before signing-off on that sentence.

Remember that your residual check is only as good as the reporting on which it is based.

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law at or call him at 514-842-0886.

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