Fine print can become an agents undoing during contract negotiations with an ISO. Simply trying to comprehend the terms of a contract can be mind-bending. But settle for a vague understanding of those terms, and you might be setting yourself up for trouble.
Salespeople should sit down with the contract, closely examine it and ask plenty of questions, says Mary Winingham, CEO of Delvan, Wis.-based Mirror Consulting.
Read it. Not just some of it. Read it all, Winingham says.
Better yet, hire a lawyer to look at the contract, sort out all the jargon and help the agent make an informed decision, she says.
Winingham finds that the problems that arise for salespeople a year or two into their contract could have been avoided during negotiations. Newcomers to the payments industry might have a hard time deciphering the terminology in an MLS contract.
Agents should pay close attention to sections of the contract that might affect residuals, Winingham says. Those sections might dictate what happens to the agents residuals if he or she leaves the business. Or the terms might specify that agents could lose residuals if they fail to produce a set number of deals each month.
Once all of those pieces of the negotiation fall into place, then and only then is it time to talk about pricing, Winingham says.
All too often, agents get drawn in by the revenue percentages the company is offering without figuring out how much money those percentages might yield.
You really have to sit down and do the math, she says.
She points out that a 100% split might sound attractive, but find out first what the company is offering 100% of. The ISO might drastically mark up the costs and fees of doing business just to lower the split.
For example, if an agent is looking at a 100% split over a statement fee of $50, compared to an 80/20 split over a statement fee of $2, the 80/20 deal is going to be a better offer.
Just because the percentages sound like theyre in your favor, they may not be. You have to look deeper, Winingham says.
One factor known to drive down an agents compensation is the fee ISOs charge to the agent per merchant per month, to pay for the ISOs overhead. Winingham warns that those fees can add up and sometimes put agents at a disadvantage.
With so many factors for the agent to consider, Winingham says it pays to entertain multiple offers. She tells clients to put together a spreadsheet detailing each offer and all of its variables, and then compare the numbers and the pros and cons.
When youre in the midst of a contract agreement, its important to remember that everything is negotiable, says Paul Rianda, an Irvine, Calif.-based payments industry attorney who specializes in contract negotiations.
Independent salespeople are trying to get the best compensation package and buy rates. Most larger ISOs pay 80% of residuals without any requirements for production. Salespeople dont always realize that when they see a contract offer for only 50%, that number is negotiable, Rianda says.
Salespeople who work as employees should also look closely at their vesting schedule, Rianda says. Most employee contracts dictate that residuals terminate at the end of employment. But some might offer vested residuals depending on how long the salesperson stays with the company. For instance, a salesperson might get 20% for two years, 40% for four years and so on.
You can negotiate a vesting schedule, so that when you do leave, you can get what youve built up over time, Rianda says.
He also advises independent salespeople to ask to keep fees, such as those for complying with the Payment Card Industry data security standards, or to get a compensation percentage of those fees. Often, a company will pay 50% on PCI with a high buy rate. As a result, salespeople dont receive much back on those fees, Rianda says.
Savvier salespeople opt to take control of the fees themselves, Rianda says. An ISO or agent who controls the PCI fees can make considerably more than they would sharing those fees with a larger processor. But taking charge of those fees also comes with a cost. The ISO might need additional employees to monitor the process of helping merchants comply with PCI.
The good news for salespeople is that some ISOs appear more generous with contract terms lately, offering higher residuals than they had in years past. Winingham sees companies shrinking the wide gap between the heavy revenues on the ISO side and lower residuals on the agent side.
There seem to be some pretty good deals out there, especially compared to five or 10 years ago. So it pays to look, she says.