Liquidated Damages In Merchant Account Agreements: How They Affect Your Business

What are Liquidated Damages In Merchant Account Agreements?

Liquidated damages in merchant account agreements are fees that your business agrees to pay if specific contractual obligations are not met. Liquidated damages are common in contracts to ensure that both parties have a clear understanding of the financial penalties for breaches. The purpose of liquidated damages is to establish a mutually agreed upon compensation for losses.

Common Causes for Liquidated Damages:

Common causes of liquidated damages in merchant account agreements include non-compliance with the contractual terms, such as failing to maintain required security standards, excessive chargebacks, or fraudulent activities. Discontinuing the use of the merchant account services without proper notice or contrary to the terms of the agreement often results in these penalties.

How are Liquidated Damages Calculated?

Liquidated damages in merchant account agreements are determined based on the estimated losses the service provider would obtain due to the merchant's breach of contract. The calculation may take into account the average monthly processing volume, the duration left on the contract, and any specific costs directly related to the breach, such as legal fees or additional administrative expenses.

How Liquidated Damages In Merchant Account Agreements Affect Your Business:

Liquidated damages can affect your business by harming its long-term operations and reputation. For example, if your company breaks the rules of merchant account agreements you might find it hard to get good terms in the future. You could end up being seen as a high-risk merchant, which could lead to higher processing fees or even losing your account.