Offshore Merchant Accounts: A Good Alternative?

Every business that caters to the public, regardless of size, should have the ability to accept credit cards for payment. Even companies that serve as vendors for other businesses should be able to process payments using corporate cards. However, there are circumstances in which getting a merchant account can be challenging. For example, a company may operate in a "high risk" market. Or, the credit profile of a small business owner may make him ineligible for a domestic account. In this article, I'll describe the basics of offshore merchant accounts. I'll also explain their potential advantages and drawbacks.

Basics Of Offshore Payment Processing

Your local merchant bank will likely be conservative. They don't relish the idea of wagering on your success. They'd rather be sure of it. Unfortunately, operating a business is rarely a sure thing and small business owners are often at pains to qualify for a merchant account. Offshore payment processing allows business owners to circumvent the strict credit policies of domestic banks. The accounts can be opened online easily, even if a merchant is saddled with a poor credit history. Once the merchant account has been created, credit card payments can be processed fluidly in the same manner that a domestic bank would handle them.

Types Of Businesses

An offshore merchant account is particularly well-suited for certain types of businesses. Often, local banks will balk at offering an account for businesses that operate in "high risk" markets. This can be due to the high volatility of those markets or banks' aversion to being associated with them. For example, businesses that cater to sports betting and adult entertainment will usually be limited with regards to their payment processing options. Online pharmacies, companies that sell tobacco-related products, and casinos will also need an alternative to a domestic bank's merchant account. Offshore payment processing is often an ideal solution for these types of businesses.

Potential Advantages

There are a number of useful advantages with using an offshore merchant account. First, as mentioned, companies that cater to certain markets are practically ostracized by conservative domestic banks. Processing payments offshore might be the only viable solution. Second, local banks will occasionally extend a merchant account contract to a "high risk" business, but they'll place a ceiling on their sales volume. The reason they do this is to limit their exposure in the event of fraudulent activity.

Finally, using an offshore merchant account has different tax implications than using a domestic account. For example, a merchant account in Asia or the Caribbean will not carry the same tax consequences for sales that a domestic account would. Those countries have different taxation laws which are often favorable when compared to those within the U.S.

Potential Drawbacks

Opening an offshore merchant account also carries a couple of potential downsides. First, the offshore company that processes payments may not be financially stable. If they disappear, sales that have not been transferred to a business owner's bank may be forfeit. Second, there are a few offshore payment processors that are operating beyond the boundaries of their countries' laws. If caught and fined, that can potentially place a business owner's sales in jeopardy.

In the end, processing customers' credit card payments using an offshore merchant account can be an ideal solution for certain types of businesses. If you're thinking about opening an account, do your research. Make sure the offshore processor is financially viable and that they're working within their country's laws. After all, the ability to process payments won't matter if you never receive the money.

This article is brought to you by PaySimple, a leading provider of merchant account services.