In order to understand compensation and account value in the merchant services business, there are two simple terms you must understand.

#1 – Up-Front Bonus.  Notice I did not say “Up Front Compensation.”  Some processors provide a “buyout” up front or sell terminals.  An up-front bonus is simply an additional form of compensation which does not affect your monthly residuals.

There are always requirements to get this bonus.  Usually these requirements take the form of volume and pricing requirements.  In other words, a merchant must process at least $3,000 in monthly credit card volume.  And you must price them according to a set of minimum pricing guidelines in order to get paid a bonus.  These requirements assure the ISO that they will be able to make a long term profit on the account.

There is also a true up of some kind in most, but not all, cases.  Usually this true up takes place after 60 to 90 days of processing.  The ISO will look at the actual profitability of the account and increase or decrease your initial bonus based on a multiple of the profits.

To understand “clawbacks” or “buybacks” on the up-front bonus is also very important.  An industry stand would stipulate that if you get paid an up-front bonus on an account which cancels within twelve months, you will be forced to pay back your up-front bonus. Of course, you would be able to keep any residual income from the account.

#2 – Residuals.  The residuals are by far the least understood form of income for the average merchant services sales rep.  This is because of one very complicated document which has caused mass confusion in the industry:  the “Schedule A.”

The schedule A is simply a document showing your costs on each account.  Although this documents is very long and complicated, it usually comes down to a small handful of important line items which have a major impact on your income and ability to remain competitive when pricing a merchant.

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