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Business owners in the tax preparation space may be shocked to find out that their company is considered high risk. Their business model seems very straight-forward and doesn’t involve any stigmatized content, yet here we are. Because of this, finding tax prep payment processing solutions is much more difficult. They are forced to jump through multiple hoops in order to process cards for their services. But what are these risks? Outlined below are the top three risky aspects associated with the tax preparation industry.
Risk Number 1: Customer Expectations
Tax prep customers are in a state of necessity and have certain expectations from their tax preparation service provider. This may be a simple person filing with the hope of a refund or a large company doing their quarterly tax payments. Either way, these customers look to the tax preparation service to be accurate and in their favor. The complexity of changing rates, brackets, etc. make customer expectations seem out of date in some cases. For example, a company may make one small change that makes a big difference in their final taxable income. Because of this, customers may feel tricked when the final numbers are revealed.
It is not always possible to make customers happy when it comes to taxes. Sometimes those things are not in the customer’s favor. Unhappy customers lead to more issues. Retention comes into play but may escalate to more serious problems if not handled properly.
Unfortunately, this situation happens more frequently than you would think. Customers are already confused about taxes and if the tax prep business comes back with less-than-ideal news, it makes customers feel frustrated and unheard. The only way to nip this in the bud is to set expectations early on. By doing this tax prep services set themselves up for success.
Risk Number 2: Chargeback Rates
The next level of risk is due to chargebacks. Every business has its propensity for chargebacks, but because of customer expectations and the overall feeling of helplessness, tax preparation services deal with them more often than others. A chargeback happens when a customer reaches out to their bank for a refund on the services that the tax prep business provided.
This is inconvenient for them and dangerous for a tax preparation merchant account. The bank has to provide the refund to the customer but also penalizes the business account. Each chargeback initiated within a month’s worth of time is added up and compared to the total amount of transactions to produce a “chargeback rate” percentage. If the monthly percentage is over the bank’s acceptable amount (usually 3% or less), the tax prep merchant account will be put on hold or shut down completely. A handful of unhappy customers can mean the difference between processing credit cards or not.
In some cases, chargebacks can be mitigated or prevented altogether. Setting up a chargeback prevention detector may be able to give tax prep business owners enough time to resolve the issue before the bank notices the request. This is not an infallible fix, though. Sometimes chargebacks get processed same-day without enough time or the business will be unable to satisfy the customer. In order to prevent them, it is safer to just process the refund if a customer reaches out rather than chance it with a chargeback.
Risk Number 3: Fraud
There are all types of fraudulent schemes out there when it comes to money management. Building on the two risks above is usually undetectable and unpreventable. One of the most popular fraud tactics seen recently is the use of a chargeback. A tax preparation business does their job and yet months later a chargeback is found on their account. In this case, customers have up to 6 months to initiate a chargeback hoping that it goes unnoticed. This just scratches the surface of the type and scale of fraud that can be found in a tax prep business.
Being able to detect and stop all types of fraud is impossible. But as long as the tax prep business is managed well and in compliance, the exposure to possible fraud is reduced.
Risk Mitigation in the Tax Prep Industry
The first step to reducing the risk factors is knowing the risk factors. Step one is now done. Now is time to tackle each of the risks. Start with the easiest risk first. By managing customer expectations, the tax preparation business will be able to prevent some of the larger issues. After that, set up a merchant account with a tax preparation chargeback detection service. Protect the business from all of the customers that slip through the cracks.
High-Risk Tax Prep Merchant Account
The tax preparation industry is considered high risk by banks and payment processors. This is the case even with mitigation procedures in place. Low risk processors will not be able to support this business type. They do not have the infrastructure for underwriting to be able to protect themselves or the business if it runs into any issues. Because of this, the only option for credit card processing is to partner with a high risk provider. The main difference between a low risk and high risk provider is the banking relationships that they have. Banks that high risk providers have in place are aware of their riskier clientele and are able to provide more leeway and support for them.
High risk businesses, such as tax preparation, need a high risk merchant account.
Steps to Obtaining a High Risk Account
A tax prep business will need to look for a merchant account provider that has experience with their specific industry. This way the tax preparation merchant account will be setup with a reliable processor. Be prepared to provide bank statements, proof of certification, and any type of marketing. With this, the bank will be able to see how the business interacts with customers and make sure they are compliant.
Don’t take a chance with the ability to process credit cards on the business’ tax preparation merchant account. Protect the business and grow it without the worry of closure.