Many processors offer a low introductory rate and discounted/free equipment to win a business then significantly hike those rates in year one.
Equally troublesome, these companies may include stiff early termination fees that prevent businesses from leaving as rates increase.
Details of Contract Terms and Early Termination Fees are often not shared with customers. Instead, they are hidden within multi-page agreements or referenced in an online disclosure.
Once the processor locks your business into a contract, rate increases occur throughout the term. Depending on the type of Early Termination Fee, the cost of cancelling the contract early may run hundreds to thousands of dollars.
There are several ways competitors lock businesses into long-term contracts that include:
- Early Termination Fee on processing
- Early Termination Fee on free or discounted equipment
- Penalties on both processing and free equipment for early cancellation
Indigo encounters all three instances on a regular basis.
Below are real examples of how competitors lock customers into long-term agreements:
Toast
- Offer free or discounted hardware with Early Termination Fees set to equal the remaining monthly software fees even if service is not provided.
Toast customizes the initial contract term on a case-by-case basis, disclosing the terms on customer proposals.
However, details of the early termination fee are located in section 8.4 of the merchant agreement that can only be found online (https://pos.toasttab.com/merchant-agreement).
Businesses cancelling with Toast before the end of the term are responsible for the following:
– All outstanding payments related to the purchase of the hardware or free hardware must be returned to Toast.
[DOUBLE CHECKING VALIDITY AND MAY INCLUDE REPAYMENT OF SUBSIDIZED AMOUNT] NOTE: AARON, let me know when this is confirmed.
– Remaining Software Subscription Fees due for the remainder of the term.
– For example, Early Termination Fee for a business with a monthly software fee of $300 and 16 months remaining in the contract would be $4,800 ($300 x 16 = $4,800)
– For Pay-as-you-go subscription, $150 multiplied by the number of months remaining in the term.
– For example, Early Termination Fee for a business with 16 months remaining in the contract would be $2,400 ($150 x 16 = $2,400)
SpotOn
- Offer free or discounted hardware and installation costs with Early Termination Fees equal to the hardware and installation discounts.
SpotOn states contract terms are month-to-month, meaning that the processing agreement can be cancelled at any time. However, SpotOn locks businesses into fulfilling a multi-year term using hardware.
The processor typically provides free or discounted hardware and implementation, but the agreement requires that discounts be repaid if processing with SpotOn stops prior to 24 months.
Implementation costs can be marked up considerably since they will be waived or significantly discounted to win the business. However, this allows SpotOn to collect a high Early Termination Fee should the business cancel before 24 months.
In the example below, the business must pay SpotOn an $8,294 penalty for discounts related to hardware and installation.
Shift 4
- Offer free or discounted hardware with Early Termination Fees equaling 100% of processing fees for the remaining contract term even if the service is not provided.
Details of the Early Termination Fee are located in Section 8.5.4 of the merchant agreement and state that customers are liable for “Liquidated Damages” to Shift 4.
“Liquidated Damages” are used by several processors and can result in Early Termination Fees in the thousands.
Liquidated Damages Early Termination Fee is calculated by using the average monthly processing fees (excluding pass-through fees) incurred times the number of months remaining in the term.
– For example, if the business is averaging $530 per month in processing fees (excluding pass-through fees) and there are 14 months remaining in the initial term, the Early Termination Fee is $7,420 ($530 x 14 =$7,420).
Indigo’s Guarantee
Service is also secondary as the competitor is aware of the Early Termination Fees that are required for the business to change processors.
Contact Indigo today for a free consultation of your processing account.