Tips for Small Businesses to Avoid Cash Reserves in a Recession

How to prevent healthy business growth from becoming detrimental risk

RED BANK, N.J., May 19 /PRNewswire/ -- As if the recession is not enough to
deal with, for small and medium businesses that are growing during these hard
times you need to be aware that your credit card processor may view your
growth as a potential indicator that you are at risk of going under and
institute cash reserves. Unfortunately the industry has learned from
experience that some merchants, about to go under, commit fraud by processing
bogus orders to bolster cash flow; which is seen by the processor as a spike
in sales from the merchant. In a time where bankruptcies and business
closures are rising it is only natural that processors are nervous.

An unfortunate byproduct of this negative behavior is that legitimate
merchants showing too much growth over a short timeframe can also be branded
as being at "risk." For those of you that may not understand the way the
relationship between merchants and processors works, the processor is on the
hook to pay for any consumer losses, chargebacks, if a merchant goes out of
business and cannot, or decides not to, cover those losses.

This being said, it should be understood that a spike in sales is not the only
reason a processor may want to implement reserves, there are a number of
factors that are looked at. The point is if you are one of the lucky few
merchants experiencing growth you can take proactive steps that could help you
avoid the reserves scenario.

First: Open Communications -- Talk with your processor, tell them about your
growth, show them recent press releases or financials that show your growth is
in fact healthy. Make sure to talk about why you are experiencing growth in a
down market. Did you reduce your prices? Do you have the market cornered? New
hot product releases? Did you get better pricing on your goods?

Second: Set Expectations -- Let them know if you are going to be having any
type of large promotion, sales event or hot new product release. No one likes
to be surprised, and you don't want the processor to sound the alarm when they
see your sales skyrocketing from sales of the next Tickle-Me Elmo craze they
didn't even know you were selling.

Third: Customer Service Signals -- I can't say this with enough emphasis, you
need to manage your customer service signals, chargebacks, credits and
refunds. If you successfully open a dialogue and set expectations but your
customer service signals don't support the story you are telling; you are
going to have a tough road to travel.

Fourth: Create a Competitive Situation -- If you are experiencing significant
growth, consider connecting to a second credit card processor and running a
small portion of your transactions through the second account. This will
reduce load on the first processor, making growth look smaller, and it
provides you leverage to pressure your credit card processors to reconsider
cash reserves

About The Fraud Practice

The Fraud Practice, http://www.fraudpractice.com, is a privately held US LLC
based in Red Bank, New Jersey. The Fraud Practice provides consulting services
on eCommerce payments, fraud prevention and credit granting. Businesses
throughout the world rely on The Fraud Practice to help them build and manage
their payment, fraud and risk prevention strategies

The Fraud Practice LLC
David Montague,
President and Executive Consultant
Toll Free: +1 888-227-0402
Telephone: +1 732-678-5863
dmontague@fraudpractice.com

SOURCE The Fraud Practice LLC

David Montague, President and Executive Consultant of The Fraud Practice LLC,
Toll Free: +1-888-227-0402, or +1-732-678-5863, dmontague@fraudpractice.com