Tips for breaking your merchant services contract

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Question Dear Your Business Credit,
Not sure if you will even know this answer. We have a merchant account with a credit card processor. We are supposed to be under contract until August, but we want to get out early. The terms and conditions state we will have to pay the lesser of the maximum amount permitted by state law. What does that mean? – Ronnie

Answer Dear Ronnie,
Wouldn't it be wonderful if someone passed a law requiring all contracts to be written in plain English? Unfortunately, it hasn't happened yet, so many merchants are forced to wade through gobbledygook like what you see in your contract.

To answer your question, I turned to Steven Martorelli of Turnkey Processing in Meriden, Connecticut. As he explained, there are usually a couple of different ways merchant services providers charge cancellation fees. One common way to do this is to charge either $500 for the cancellation or 0.3 percent of average sales volume multiplied by the number of remaining months in the contract – whichever is less or whichever is greater, depending on the terms of the contract. When a merchant services firm operates in many different states, it will often base one of the two options on the maximum fee allowed by the laws of each state.

It doesn't appear that you have included the exact wording of the contract, but based on what you shared, it seems that you are being told you must pay either the cancellation fee specified or the maximum amount permitted by state law – whichever is less.

Your letter points out the importance of knowing what you sign. Merchant services contracts often have clauses that make it very hard to break them early.

"Most often people don't know what they're signing into," says Martorelli. It doesn't help that some of the documents are 30 pages long, he adds.

Martorelli has seen cases where merchants are told by a sales representative that there is no cancellation fee, when there actually is one written in the fine print. "You have to be very attentive about looking through the contract," he says.

It may be too late for you to avoid a cancellation fee on this contract, but that doesn't mean you have to pay another one in the future. If you shop for another merchant services provider and are told verbally that there is no cancellation fee, ask the salesperson to highlight the clause in the contract that says it is zero, Martorelli recommends. If the salesperson can't, ask the company to provide a signed written document saying that the cancellation fee is zero, he recommends.

There are many honest merchant services providers, but the industry has also had its share of sleazy operators, as I discussed in a past column ("Beware shady merchant processing contracts"). The Federal Trade Commission has published a list of tips for shopping for merchant processing services that I recommend every small-business owner read. It highlights common fees that are worth inquiring about before you sign on the dotted line. This is one area of business where you can't be too careful.

See related: Is it time to negotiate a new merchant account?

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Updated: 03-23-2019