Construction Merchant Account – Is it High Risk?
General construction, home Improvements, and landscaping businesses are three industries that are often recognized as being in the higher risk and harder to approve business categories. It is simply in the nature of these businesses to often accept very large dollar amounts on credit cards, debit cards, and eChecks. Often times these transactions can be disputed, especially by unscrupulous customers wanting to back out of the large payment charged on a high interest rate credit card. Due to these high dollar amount ticket sales, sponsoring banks and credit card service providers often label these higher-risk construction business types as hard to approve. SecureGlobalPay understands these business models and has solutions in place to assist these merchant types. Learn what it takes to get approved for a construction merchant account and start utilizing credit card construction merchant services for contractors to increase your revenue streams.
Acquiring banks and payment processors tend to employ experienced underwriters to examine applications for high-risk merchant accounts of all business types. They pay special attention to those that operate in the construction industry, especially those that accept very high ticket sales. Not all banks and card processing services will process for this industry. If they are not all that familiar with the business model or have an appetite for risk, they simply will pass.
Why is a Construction Merchant Account Considered High Risk by Merchant Account Providers?
Credit Card payment processing companies and acquiring banks look at an industry from a very different perspective than just safety. High-Risk Construction Merchant Accounts need specific acquirers familiar with the business model, who understand the specific needs of these types of businesses.
Banks as well as processors, tend to look at the potential profitability of handling a company’s card payments and also assess potential risks that could give rise to losses. There are about 60 industries in America that are considered high risk for merchant accounts. High-Risk Construction Merchants are just one of them.
Do Contractors Typically Take Credit Cards?
Contractors often take credit cards for payments in kind, such as materials or labor. It is also necessary to have a credit card to pay for services such as utilities and rent.
There are several reasons why contractors might take credit cards:
- They may not have cash on hand for everyday expenses.
- They may want to build a good credit history by using credit cards responsibly.
- They may want to increase their business credibility by financing it with a credit card.
The first two reasons are the most common ones. They can be resolved with a little planning and forethought. The last one is more of a risk; you’ll need to weigh the pros and cons before taking on this option.
If you’re starting out in business and need to get things moving quickly, accepting credit cards can help you do that. Even using a card for a short-term loan can drive business growth —but, only if you use services wisely.
Contractors, especially those who work on large-scale projects like remodeling or building additions, often take credit cards to make it easier for their customers to pay. In fact, many companies today prefer to accept credit cards because it’s an easy way to expedite the payment process. Not only that, but it allows them to track the transactions and manage their cash flow more easily.
This is why so many in the industry choose to use a construction merchant account, as it makes running a business easier and streamlined payments help to keep customers happy.
Top 3 Risks For A Construction Merchant Account
Fraud and chargebacks are at top of the list of risks for many consumer industries. That’s because they often generate an operational loss which soaks up time and effort by their support staff. The card payment risk profile for the construction industry includes these three major factors:
Irregular Big Ticket Transactions
Large invoice amounts raise red flags because of the potential for chargebacks. The worst possible scenario for a card processing service is when a customer claims a chargeback and the construction company has gone out of business or is unable to refund the amount for whatever reason. That leaves the payment service provider holding the bag and the (probably very significant) loss.
Unlike consumer retail businesses with many face-to-face transactions every day, the nature of a construction or renovation project displays a very different payment profile.
Regardless of whether the business is large or small, agreed payments from clients are irregular. For small businesses, it is probably a good idea to inform the card processing service ahead of time and let them know of expected dates and amounts processed to help ease the acceptance and authorization process from their end.
Licensing and Regulation
Because so much of public safety depends on sound construction principles being applied, the construction industry is heavily regulated.
Construction merchant services are even more complex when you consider that there is no central Federal licensing system. Roughly 75 percent of states license contractors, usually focusing on the business itself but some states also license the workers themselves.
Breaching regulations can be considered a criminal offense, with possible prison sentences.
What all of this means is a high perceived risk that a construction contractor might fall foul of legal requirements and regulations. That could result in litigation, which could include the card payment processing company or bank.
Contractors need to be able to accept payments in a manner that suits their clients. The last thing they need is any holdup in receiving funds. That usually means multiple card processing solutions and multiple merchant accounts.
Contractor Merchant Account Options to Accept Credit Cards
Payments Over the Phone – This is classified as Card (or cardholder) Not Present (CNP). The risk inherent in this process is that the merchant is not doing business face to face with the customer, cannot see the credit card, or otherwise verify that the person making the payment is the authorized cardholder. This opens up the risk of credit card fraud and chargeback potential.
Payments in the Field – Typically a small contractor may need to be able to accept payments on the client site. That could be in a home, out on a construction site, or anywhere out in the field. It requires internet connectivity to the card processing service’s system via a special terminal or perhaps a virtual terminal through a tablet or smartphone which has access to a data connection.
Payments in the Store or Office – This is the regular model for walk-in customer payments using a standard card swipe terminal or similar device.
How does a Construction Merchant Account Work?
A construction merchant account is a type of business account that’s designed to help a company manage its construction-related transactions.
Credit card merchant services for contractors are also used by construction companies who want to keep better track of their sales invoices, receipts, and other important accounting documents.
A merchant account for contractors is usually set up to facilitate occasional larger transactions where the customer is looking to float the money on their credit card. It’s like a regular merchant account, in that it allows you to receive payments from customers, but there are some key differences.
Construction merchant services are typically used by businesses that want to sell large quantities of construction materials to construction companies or other businesses. A construction merchant account can be set up online. It’s typically used by companies that are involved in building projects such as renovations, new homes, commercial buildings, and roadways.
Like a regular merchant account, construction merchant services for contractors allow these businesses to take credit card payments and allow your customers to pay with their Visa or MasterCards.
As these amounts are usually large credit card payments, the extra protection built into this high risk merchant account variant is vital. The additional checks and reserves help to protect sellers from fraud and resulting cashflow issues.
Moreover, the processor and rule configurations handle most of this, meaning the business can focus on sales and growth instead of payment processing distractions.
What is Included with Contractor Merchant Services?
Contractor Merchant Services is a great way to earn additional revenue by allowing customers to pay by credit, debit card, e-Checks, and even Crypto.
When you sign up for contractor merchant services, you’ll have access to powerful tools that will allow you to accept mobile payments or integrate your payment service into a website.
You can also send invoices, choose various payment terms, and set up automatic billing so you never miss a payment.
A construction merchant account includes everything you need to get your project done on time and within budget. These services include:
– Cost management
– Reporting & analytics tools
– Rules for processing and fraud prevention
– Onboarding support.
By talking to merchant accounts for contractors specialists, you can quickly find out what would work best for your business.
How to get a Construction Merchant Account for your Business
If you have found it difficult to find a bank that will give your construction business a merchant account, you are not alone. Acquiring banks and card processing companies favor what they consider low-risk businesses on their terms.
The good news is that there are savvy credit card payment processors and banks who have taken the time to understand the construction industry, how it operates, and the unique payment challenges it presents. They have years of experience and have developed business models to suit.
The key to success in being approved for a merchant account is to deal with people who know who these specialists are. We at SecureGlobalPay have spent years building relationships with banks and card payment specialists in the construction sector.
What this means is that we are very good at matching applicants with suitable card payment solution providers who actively support construction industry businesses.
Take the First Step Now in Applying for a Home Improvement Merchant Account
Now that you understand why construction businesses are considered high-risk merchants, the next step is to get a merchant account for your business.
Whether you are setting up a new construction business or switching construction merchant services providers to possibly save some money or get a better overall solution, now is the time to set things in motion.
Once your application is submitted, we expect to update you with a status report within 1-3 business days. If you prefer, call +1-800-419-1772 and speak with one of our construction payment processing experts who will be more than happy to answer your questions.