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Street SmartsSM
The Key to Success
By Ed Freedman

On a regular basis, I hear horror stories about how companies just stop paying monthly residual commissions to their agents. I've also seen similar postings on The Green Sheet's MLS Forum that indicate how serious this problem is.

For example, the MLS Forum recently posted this query: "How can we help each other protect our residuals?" Here are some of the responses:

"Let's have some constructive ideas on different ways to help each other through our experiences with different companies paying or not paying residuals. My acting like a pit bull may not have been the right approach.... Anyone have some ideas that won't land us in court or jail?"

"The first step is to make sure you understand your ISO contract. Your residual payments should be clearly spelled out....Take the time to visit the ISO office you are seeking to contract with and ask others about their relationship with that ISO. Due diligence on your part is important, so take the extra time to make sure you are contracting with an honest and reputable ISO."

"The first and only rule is to get your contract right before you sign..."

"I appreciate all suggestions on signing better contracts and dealing with more honest ISOs. The problem is they don't come with warning signs - only wonderful promises. I'd rather hear from the reps themselves on whether they were paid or what reason the ISO used not to pay. I want to hear the rep tell me how long it takes to get the MID and download. The ISO can blow smoke all day long. The rep experience is what is real. ...We can protect each other more this way or at least as well as the contract we sign. It costs nothing to hear of real experiences from other reps and will make the ISOs think twice if they know everyone knows what they are doing. We are each other's best protection. What is the best way to do it?"

Whenever I hear these stories or read these postings, my immediate reaction is similar to the advice reflected in some of the MLS Forum postings. I say, "Go back to the beginning. It all starts with the contract."

The key to success in our business is to get an agreement that protects you from losing your monthly residual commissions.

Sure, every MLS needs to receive a substantial piece of the net revenue generated from his or her accounts but, more important, every MLS needs to make sure the contract protects him or her from losing that piece.

Here are several common ways that honest salespeople can avoid losing their residuals:

First, you must ensure your agreement provides you with no liability for merchant losses. For instance, one merchant's losses could easily wipe out a monthly residual income of $2,000 to $5,000. Never set up an agreement where you are liable for, or where you share liability for, merchant credit losses.

As a salesperson, merchant losses have no part in what you bring to the table. Being responsible for that is never a good idea. Liability can be a residual killer.

Another common mistake is entering into a contract with an exclusivity clause or minimum monthly production requirements. With regard to exclusivity requirements, look out for any provision in the agreement that requires you to send any or all of your business to this specific merchant account provider.

Make sure you can send business anywhere you choose, and make sure you do not need to continue to send a minimum amount of business on a regular basis to the ISO you're signing with.

The only provision that I think is acceptable would be a requirement that your monthly residual commission be at least a minimum amount after one year (e.g., $250 to $500 per month) in order to continue to receive your monthly commission.

Another item to look out for is language that requires you to sell your residual portfolio for a specific multiple or "fair market value" at the timing or choosing of the ISO. This is another hidden "bomb."

It is nice to have the option to sell your portfolio. It is another thing to be required to sell your portfolio. You need to be very careful. It's a "buyer beware" or in this case "salesperson beware" environment.

In the past, Merchant Level Salespersons could make a living from the upfront revenue earned when selling or leasing terminal equipment or software. The monthly residual commissions were considered extra income and not critical to their livelihood and ultimate success.

Today, as a result of diminishing opportunity to earn upfront fees from setting up merchants, many smart salespeople are figuring out, often the hard way, that their agreement for residual income will be the determining factor as to whether they will be able to survive in this great business.

This leads us to another important issue: Do you really know the people you're doing business with? Remember this: The contract is only as good as the people and the company behind it.

Take a close look at whom you are signing with as well as what the contract does or does not say. The contract often is only as good as the people behind that piece of paper. Simply getting a good contract is not good enough.

What do you know about this ISO? What are your chances of being paid properly? You need to do your homework and determine if you will receive your commissions in a correct and timely manner - and we are not just talking short-term. Does the company you're working with have a long-term track record for paying sales agents properly?

Then there's the risk factor. Does the ISO you're signing with have a firm grip on the risk-management part of their business? If not, the company could get tossed right out of the marketplace, and your residuals will go down the drain when that happens. So, please, take my advice as well as the good advice from the postings on the MLS Forum on this subject. READ the big print and the fine print. Make sure you UNDERSTAND all the terms and conditions of your agreement for residual commissions.

Before you go out and write another deal, examine your contract. If you don't, you might end up getting burned - through no one's fault but your own.

Even if you've been doing business with someone for a while, pull out the contract. Call the company if you have any questions about certain issues. If there's something that needs to be clarified or rewritten, get them to prepare a newly signed agreement that fixes any of the problems you've uncovered.

Spend a little money to contact an attorney if necessary. It does not cost that much money to make sure you're protected. This is my "spring cleaning" advice. So let's get to work and clean up this important issue.

Now that we have the key to building our portfolios on a solid foundation - i.e., the contract - let's talk compensation. In my next column, we will discuss not only the latest trends in compensation but also talk about the much-debated issue of buy rate versus revenue share.

"When you want what you've never had, you must do what you've never done."

- Anonymous

I'll see you next time where the rubber meets the road.


Ed Freedman is founder and President/CEO of Total Merchant Services, one of the fastest-growing credit card merchant account acquirers in the nation. Ed is the driving force behind all business development activity as well as the execution of Total Merchant Services' marketing plan, including recruiting and training independent sales offices and establishing strategic alliance partnerships with leading vendors so that Total Merchant Services can provide its customers with the highest quality and most reliable services available. To learn more about Total Merchant Services, visit www.totalmerchantservices.com . To learn more about partnering with Total Merchant Services, visit www.upfrontandresiduals.com or contact Ed directly at ed@totalmerchantservices.com

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