If your business is classified as high risk, this can lead to financial problems. You’ll already be aware of this if you operated a high risk business and needed to gain financing. This is because traditional lenders will often only back startups that are considered safe investments.
Yet as this article will explore, that is only the start of the financial hurdles that a high risk business will encounter.
What is a high risk business?
The clue is in the name. A high risk business is one which is, well, defined as high risk. If your business is judged to be high risk, this could have detrimental effects on your ability to process online transactions.
Read also: Financial Risks Startup Owners Need to Be Aware Of
Look at this way. As a merchant, you want to generate sales and revenue from customers as soon as possible. Your customers want to receive the exact products they ordered and delivered at the time you stated. The financial institution, aka the middleman to complete the transaction, wants you and your customers to stick to the aforementioned agreements.
When the financial institution believes there is a significant risk when processing your online transactions, they will view your business as high risk. Ultimately, the majority of institutions will avoid providing accounts to high risk businesses.
Businesses often labeled as high risk include:
- Online gambling and casinos
- Travel and holiday packages
- E-cigarettes and vaping
- Adult websites
- Online firearms
- CBD oil/cannabis products
- Digital downloads
- Subscription-based services
Along with being involved in an industry regarded as ‘high risk,’ there are other factors that come into play. This includes if you’re a new business, if the sector you’re operating in has a high employee turnover rate, you’re not compliant with industry security regulations, and if the sector suffers from high chargeback ratios.
The financial hurdles and how to surpass them
Aside from securing funding, there are two main financial hurdles to overcome for high risk businesses:
- Finding a financial provider who will work with high risk businesses.
- Lowering the amount of chargebacks received.
As for the former point, it is important to find a company that focuses on high risk cases. For instance, Limitless Payment Solutions is a financial provider that specializes in high risk merchant account services. They know what services you will need, ensuring your business doesn’t have to slow down due to not being able to accept online payments.
When it comes to chargebacks, it’s important to accept these are natural in the world of business. Every merchant will experience chargebacks, both legitimate and non-legitimate, at some point.
With that said, the higher the percentage of chargebacks your business receives, the more chance you have of being labeled as high risk. Thankfully, there are a number of steps you can take to reduce those chargeback numbers:
- Offer refunds: If a customer isn’t satisfied, don’t leave them to resort to a chargeback. Provide them with a clear method for requesting a refund.
- Supply an easily identifiable transaction description: If a customer receives their credit card statement and notices a descriptor they don’t recognize, they might believe they have been the victim of fraudulent activity. Due to this, ensure your business name is identifiable on any such documents.
- Send a confirmation email: By sending out an automatic confirmation email right after a purchase, customers won’t be left frustrated or panicked that their order hasn’t been processed. If applicable, another email should be sent once their purchase has been shipped.
By picking the right financial provider and avoiding an excess number of chargebacks, your high risk business can still thrive.
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