CHICAGO -- Above all else,ISOs and agents should make sure their residual payments never end.

“Most important is that you get paid forever -- even if you’re sitting in jail,” Jill Miller, a partner at the law firm of Jaffe, Rait, Heuer & Weiss PC, told an audience here at the Midwest Acquirers Association 11th Annual Conference.

Her comments on the importance of negotiating a processing contract that assures ISOs will receive their share of transaction fees as long as the merchant pays them came during a presentation in the Field Guide Seminar.

Often, ISOs also want their agents to have the option of selling the rights to those residuals, but an unfavorable contract can prohibit that, Miller cautions.

ISOs should avoid the trap of assuming they take on no risk because they run a retail operation, Miller says. Contracts could introduce liability under certain conditions, perhaps in cases of fraud or misconduct, she notes.

That’s why a provision Miller’s firm uses to absolve ISOs from risk has recently grown from a sentence to a paragraph, she says. The elongation occurred during the weekly meetings of the seven lawyers specializing in electronic payments at her 100-attorney firm, she adds.

That combined experience also alerted the firm to the possibility that processors may try to make excessive deductions from residuals. Miller likes to include a proviso stating the processor can deduct only a certain amount from residuals, usually about 25%.

A clause establishing that the processor that defaults must pay any legal fees the ISO incurs as a result has emboldened some ISOs to seek legal remedies, proving itself “helpful and useful,” she says.

A contract issue that’s business-oriented and usually doesn’t involve attorneys still merits close attention by ISOs, Miller advises. Agreements sometimes require ISOs to meet minimum sales levels in specified periods. When such provisions arise, ISOs should negotiate for a “ramp-up period” that would provide time to meet the requirements.

That grace period seems especially important for anyone new to the acquiring business, she says.

“All of your seeds haven’t started to sprout,” she says of the way today’s work may not pay off until tomorrow.

Although Miller enjoys negotiating, the process becomes more intense in the later stages, and “deal fatigue” can set in, Miller says. Don’t succumb, she warns.

“Stay strong,” Miller admonishes. “Otherwise, you’ll make concessions.”

As negotiations unfold, remember that “silence is golden,” and stop talking when the other side concedes on a particular point, she says.

Bear in mind that everything is negotiable, Miller says.

“The contract they give to you is not what they expect you to sign,” she says.

Don’t base negotiations on what’s happened in the past, Miller says. A company that used to insist on a certain provision might now relent, she notes.

And get ready for a lengthy process when negotiating a processing contract. Most require six to eight weeks of back-and-forth, Miller estimates.

While contract negotiations often mark the beginning of an ISO or the beginning of a business relationship, ISOs should remain mindful of the end. They should have an exit strategy for selling their merchant portfolios or their entire companies, she says.

To facilitate either type of sale, ISOs should realize potential buyers want to view every detail of the business. That’s facilitated by good recordkeeping, Miller advises.

Giving reps too much authority discourages potential buyers, while avoiding exclusive relationships with processors encourages potential buyers, she says.

Attrition and the quality of the accounts can affect a portfolio’s value, while factors that change the value of a company include a strong sales force and good management team, Miller notes.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry