Experience Seamless Financial Services!How to Scale a High-Risk Business Without Losing Your Business Account
Let’s take an example of a company selling CBD products, and the brand finally starts reaching its goals, marketing strategies start paying off, as reflected in sales. Then suddenly, being in a high-risk sector, payment processing starts failing, and your accounts freeze, breaking the cash flow and sales cycle. What looked like a business growth to you soon became an operational hindrance.
This is because for a high-risk business, growth is not as simple as it is for low and medium-risk sectors, as their financial infrastructure is often not prepared to handle large-scale, high volume, or high-risk payment processing. If you are flagged high-risk by payment processing companies, you need a business account that is designed to support your high-risk payment processing needs and grow with you as you scale.
Common Reasons Why Businesses Lose Payment Processing While Scaling
- Higher Transaction Volume:
With business growth comes a sudden spike in transaction volume, which triggers high scrutiny and, as a result, delayed or rejected payments.
- High Charge Ratio
As businesses scale and acquire more customers, chargeback volumes often rise, and once the ratio breaches the provider’s threshold, your account can be terminated.
- Compliance Concerns
With business growth, unfortunately, compliance becomes even harder. As high-risk sectors are often subject to strict regulations, missing compliance raises a red flag for payment providers.
- Changes in Business Model
Processors approve your business account for the specific details you provided regarding products, model and sector. So, when a business scales and moves in a different direction without notifying the provider, it can appear as a violation, resulting in the seizure of your account.
- Inconsistent Transition Pattern
In some cases, for high-risk businesses, unusual changes in transaction frequency can raise concerns like suspicious activity or fraudulent patterns, leading to scrutiny, review, limited account activity or even termination of service.
Tips to Scale a High-Risk Business
- Keep Your Chargeback Ratio Under Control
One of the most important things you can do for your high-risk business is to make sure your chargeback ratio is under the cap allowed by the provider you have. Chargebacks are the worst enemy of your high-risk business, and the moment they exceed the threshold, they can create serious friction in your scaling journey, so the best you have is a buffer to absorb ups and downs without reaching a dangerous level. Proactively work on it by making refunds easier, using a transparent billing system, and maintaining responsive customer communication.
- Have Multiple Payment Processors Infrastructure
Don’t put all your eggs in one basket. Putting all your trust in a single payment processor, especially during the scaling phase, can make your business payments highly vulnerable, as one unfortunate moment could bring everything to a halt. Always have a strong payment processor infrastructure with multiple accounts, with at least one primary and secondary account, so you always have a backup plan ready if things go south.
- Always Prioritise Compliance
Compliance, being the biggest roadblock for high-risk businesses, is also the most significant part, especially when it comes to getting a business account. As a high-risk business, compliance is non-negotiable for you at any stage, even when you are taking your business to the next step. Most successful high-risk businesses are the ones that focus on strong compliance, which can even help you build a stable relationship with the providers, flexible or larger volume limits and lower transaction fees as well for your business payments.
- Understand the Rolling Reserves
Rolling reserve is the percentage of your revenue that most high-risk payment processing companies hold for a specified period as an added layer of protection or buffer against fraud, refund or chargebacks. However, this can seriously impact a business in terms of disrupted cash flow; therefore, it is important to understand how rolling reserves work before planning to grow your business, as it can become an operational challenge in future if ignored.
- Keep Your Payment Processors Informed
Transparency is highly essential when you are categorised as ‘high-risk’ by a provider, because then your every activity is likely under the radar and can trigger unwanted reactions like termination of services. For example, you specified a product category when creating an account, and later you decided to add another product line; this can quickly raise red flags. To avoid ending up in such a position, you must update your business details with your business account provider. Whether it is a change in business ownership, legal structure, address, operations or product to build trust and mitigate compliance concerns.
Want more tips, financial advisory for your high-risk business or a reliable financial service provider for your specific business needs? Wirewand has got you covered!
About Wirewand
Wirewand is a team of experienced financial advisors with a vast, carefully curated network of financial service providers for high-risk businesses and high-net-worth individuals. So, whether you are looking for a business account, an online payment portal, or a business debit card, we can connect you with the right provider to make your business payments seamless and hassle-free.
Say no to traditional banking hassles, and get solutions specifically created for your high-risk sector! Get started with Wirewand today!