When I am contacted by a new client to review an Agent Agreement, one
of the first questions that I am usually asked is what are the various
steps involved in negotiating an Agent Agreement. Below, I will
discuss how the an Agent Agreement is negotiated from the perspective
of a sales agent who is utilizing an attorney to review the contract.
In this article, I will use the term “credit card processor” to refer
to the wide variety of banks, ISOs and other organizations that are
seeking sales agents to sell their credit and debit card products and
services.
Choosing A Partner
Whether you are a new sales agent looking to enter into the bankcard
industry or an industry veteran who has decided it needs to find a new
credit card processor, the first step in the process is identifying the
best fit for you in terms of a credit card processor. In the current
market, most credit card processors offer very similar pricing packages
to their agents. Since price then, does not act as a great
differentiator, the typical sales agent needs to find other ways to
evaluate potential partners. Some of the things that sales agents use
to evaluate potential partners are the credit card processor’s level of
customer service, monetary incentives (i.e. free equipment or
per-merchant bonuses) and technological features such as online
applications. The most important thing to do is to make a list of the
things that you as a sales agent require in a credit card processor and
then go out and find the right partner.
In a number of instances, I have had sales agents come to me that have
not done much industry research as to who would be the best partner for
them. Instead, the sales agents may have only looked at one or two
credit card processors and then made their decision on who to partner
with after very little review. I find that under those circumstances
the credit card processor that they have chosen is usually inadequate
or may not be competitive for a number of different reasons.
In order to determine the best credit card processor for you, it is
advisable to look at the various online forums and approach people
knowledgeable in the industry to evaluate their relationships with
credit card processors. A referral from one of these sources can be
invaluable in picking the right partner for you. The objective is to
make a well-informed decision about the credit card processor that you
choose as your partner.
Starting the Negotiation Process
Once you have made an informed decision as to who would be the correct
credit card processor for you, the next step is to negotiate an Agent
Agreement with that credit card processor. Your best course of action
is to have the credit card processor send you an electronic copy of
their Agent Agreement in Word format via e-mail. It is important to
obtain an electronic copy of the Agent Agreement so that your attorney
can make any necessary changes in the body of the Agent Agreement.
This redlined document can then be sent to the credit card processor’s
attorney for review. This leads to a much more efficient process of
negotiating a contract rather than trying to handwrite in changes or
use a separate document to set forth the changes that you are
requesting in the Agent Agreement.
In my practice, once I receive an electronic copy of a contract, I have
a checklist of items that I go through to make sure that the sales
agent is adequately protected under the Agent Agreement. As can be
expected, most of the contracts that I see are very one-sided and
protect the interest of the credit card processor, but not necessarily
the sales agent. My objective in reviewing and changing the Agent
Agreement is to make sure it adequately protects the interests of the
sales agent, while at the same time giving the credit card processor
the comfort it needs to enter into the Agreement.
Depending on the Agent Agreement, I usually change or add anywhere from
10 to 15 substantive provisions in the Agent Agreement. Some of most
common provisions I add include: insuring that residuals are paid upon
the death of the sales agent; that the sales agent has the right to
move merchants that are dissatisfied with the credit card processor;
that the credit card processor cannot directly solicit the sales
agents’ sales offices and a right for the agent to sell its residual
stream subject to a right of first refusal by the credit card
processor. In addition, one of the main provisions that I usually have
to modify is the “terms and conditions” under which the sales agent’s
residual payments can be terminated.
Once I have made the appropriate changes to the Agent Agreement, I
forward it either to counsel for the credit card processor or to my
client - the sales agent - who then forwards it to the credit card
processor. After a period of time, the credit card processor will
provide it’s responses as to whether or not it will allow the changes
that I have proposed. In my experience, approximately 60 to 80 percent
of the changes I propose are usually accepted by the credit card
processor during this first round of negotiations. The final step in
the contract negotiation is to close the gap on those remaining issues
to find some compromise provisions that both parties can accept.
Closing the Deal
Once the credit card processor identifies changes to the Agent
Agreement that it is not willing to make, a conference call is often
the next step in the negotiation process. During the conference call,
the attorneys for both the credit card processor and the sales agent
are on the call along with the business people for both parties.
During the call, the goal is to find compromise provisions for the
issues that are still outstanding. In my experience, the main subject
matter of most of these calls is the terms under which the agent’s
residuals can be terminated. Once the conference call is concluded, it
is up to the attorneys to draft the compromise provisions which are
circulated back and forth for another round of changes. Usually, the
changes involved at this stage are fairly minimal and the parties can
come to a decision as to the final version of the contract fairly
quickly.
The last step in the process is to circulate the final version of the
contract. It is important to carefully compare the final version to
the prior drafts of the Agent Agreement to make sure that the final
version reflects all of the changes that have been made throughout the
process. If the changes are all reflected in the final document, it is
time to sign the Agent Agreement. It is very important for the sales
agent to get a copy of the Agent Agreement signed by the credit card
processor. Many agents fail to do this and are left in a situation
where they may not have a copy of the Agent Agreement to refer to at a
later date or use in any litigation between the parties.
The process of negotiating an Agent Agreement is an important part of
protecting your residual stream. The process itself is often long and
frustrating, but the end results are usually worth it.
** The information contained herein is for informational purposes only
and should not be relied upon in reaching a conclusion in a particular
area. The legal principles discussed herein were accurate at the time
this article was authored but are subject to change. Please consult an
attorney before making a decision using only the information provided
in this article.
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