Previously seen in Green Sheet

Recommended reading: Your residual report

By Allen Kopelman

In statistics, the word “residuals” means the difference between an observed data value and predicted data value and could also mean an error. I find this hilarious because in our business of merchant acquiring, there are plenty of residual errors going around.

As any payments pro will tell you, residual reports can be complicated, but reading them is worth the effort. Accounting is an inexact science, especially when your paycheck is made up of tiny little splits from millions of transactions – what could possibly go wrong?

Have you ever been short paid by an ISO or contested a residual payment? If you can’t think of a single example, you may need to pay closer attention to your monthly residual report. I hear from merchant level salespeople (MLSs) who have escalated issues regarding commissions, residuals and referral fees.

These experiences are part of the job, and believe it or not, they can create deeper bonds between MLSs and ISOs when managed in a calm, professional manner. Here are a few memorable examples.

• Short payment: We had an ongoing situation with an ISO partner. Each month we’d find discrepancies between the amounts shown as paid on our residual report and our bank deposits, which were coming up short.

   

  We addressed this issue with calls and in an overnight letter that showed screenshots of our bank deposits. The ISO apologized and promptly transmitted the overdue funds. Ever since then, we have thoroughly checked our residual reports, because you don’t know what you don’t know.

• Monthly minimum: I recall an acquirer debiting our account by $100 for each of our merchants that fell below their monthly processing minimum.

   

  We called and asked them why we would be billed when they bill our merchants directly. They looked up our agreement and admitted that it didn’t specify who would be billed for a monthly minimum charge and sent us a refund for the fees that they deducted.

• Automated billing errors: An ISO partner we had worked with for over 15 years was changing to a new billing platform and left four or five of our new clients behind, and we were not getting paid on them. This was a good partner, and it was awkward to open a new service ticket every month and request our overdue residuals.

   

  Finally, after four months of appeals, they sent us a corrected report that showed overdue commissions had been paid for each account.

• Chargeback revenues: We once asked a partner why we weren’t getting paid for chargebacks and were told that “there weren’t that many.” We countered by saying our records showed 50 chargebacks the previous month, and we were due a percentage of chargeback fees.

   

  Two days later, the ISO acknowledged the error and paid us accordingly.

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What’s an MLS to do?

Reconciling residual statements doesn’t have to be onerous. Here’s a simple checklist to keep you and your ISO on the same page:

• Match bank account deposits and monthly residuals shown as paid.

• Check all revenue columns to make sure they are filled out and don’t have zeroes.

• Get one or two merchant statements from a high-volume merchant account, including chargebacks and debits, to make sure that you’re getting paid for chargebacks.

• Check for price increases and line-item expenses, such as statement fees, etc., and make sure that you agreed in writing to these changes.

• Be vigilant for fluctuating residual volumes on accounts that are usually steady, as these could be potential red flags that an ISO is in financial trouble or possibly selling.

When you find a discrepancy, follow the guidelines of your ISO agreement and email your ISO. Most contracts have a 30-day window for complaints. If the ISO does not respond, send a letter detailing the issues you described in the email. In my experience, you rarely need to take this step because most ISOs respond promptly to these issues.

Trust but verify

Sometimes your merchant portfolio will be sold. We’ve seen this happen multiple times. In fact, we have one portfolio that has been sold four times since 2001, and the last sale was a total nightmare. We stopped sending new business to the partner and have always had a backup processor, because mergers and acquisitions are part of this job.

Trust but verify is the golden rule in merchant services. There’s no exact science or AI software that can analyze your residual reports for you. Roll up your sleeves and get to work. Sometimes partners make mistakes; be a good sport but hold them accountable.

One of my favorite expressions, which has been attributed to Mark Twain but predates him, is “figures don’t lie but liars can figure.” Check your bank account and residual reports for negative numbers and zeroes. Don’t be the MLS who never checks your bank account. Take 10 to 15 minutes every month to check your figures and don’t be a Silent Joe. Not asking questions is the worst thing you can do. Just remember: your stupidest question is the one you didn’t ask.

Want to learn more? Keep reading The Green Sheet and follow me on LinkedIn at www.linkedin.com/in/allenkopelman, where we can share ideas and help each other grow.

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