How to Cancel Your Merchant Account For Free

Businesses have the right to terminate a merchant account at any time. But if you’re not careful, this simple action could trigger some serious penalties and fees.

Lots of merchant services providers add strict contract terms with early termination fees and liquidated damages that could result in you paying tens of thousands, if not hundreds of thousands of dollars if you cancel before your contract expires.

Don’t worry. There are still plenty of ways you can cancel your merchant account for free, and that’s exactly what I’ll explain in this guide.

First, Consider This Option Before You Cancel—It Will Save You Time, Money, and Headaches

Most businesses want to close their merchant account because the fees are too high and they feel like they can get a better rate elsewhere. If you fall into this category, don’t cancel your merchant account just yet.

Your payment processing fees are negotiable—and you’re likely to get a better rate by sticking with your current provider and working out a new rate.

There’s also a chance that your provider is adding hidden fees or extra charges that could be artificially increasing your rate. These can easily be removed (and potentially refunded) if you know how to spot them. 

Contact your team here at MCC for a free audit. We can review your statements to identify any cost savings opportunities and negotiate rates with your provider—so you can save money without terminating your merchant account or switching processors. 

8 Steps to Terminate Your Merchant Account

If high fees aren’t your reason for wanting to cancel your merchant account, then you can proceed with the steps below to close your account for free.

Step 1 — Review Your Merchant Services Agreement

Your merchant services contract is going to be the most important resource in this entire process. Everything about the account termination process, including applicable fees and penalties, will be in here.

The contract will also outline specific steps, like whether you need to give 30 or 90 days notice prior to closing the account, and if you need to mail a letter to a specific address or if an email is sufficient. 

One common mistake that people make in this step is that they just Google search the boilerplate contract from their provider. Don’t do this. 

A merchant services agreement that you find online or from your provider’s website may not have the exact same terms as the merchant agreement that you signed. So find that contract, and use that as your source of truth. 

Step 2 — Consult With an Lawyer

Your initial read-through of your contract should give you a general understanding of where you stand and whether it’s going to be easy to cancel. In some cases, it’s a clear cut-and-dry case where your contract will expire in a few months and you’re better off just waiting it out instead of canceling. 

But those contracts are really hard to read and understand, especially to the untrained eye. 

Processors make those agreements intentionally deceptive so merchants don’t always know what they’ve committed to. For example, you might do a quick document search for “liquidated damages” and nothing comes up—so you assume that those types of penalties won’t apply if you cancel.

Don’t assume this. Many providers bury language in those contracts that include damages, even if it’s not obvious and written in those exact same words. 

Let a lawyer review this stuff for you to spot anything you might have missed and give you legal advice on the next steps.

Step 3 — Have Another Provider Lined Up

Unless you’re closing your business for good or plan to only accept cash payments moving forward, you should have another credit card processor lined up before you cancel anything. 

The underwriting process to set up a new merchant account can take several weeks, and you don’t want to be stuck without a way to get paid while you’re between providers.

Another reason why it’s so important to talk to another provider is because you may ultimately realize that the grass isn’t always greener on the other side.

Your new processor will almost always undercut your current rate. But if they’re just barely beating it, you can expect to be paying the same rate as your current provider (if not more) within the next 12-24 months. 

I recommend using new quotes as leverage to negotiate with your current provider before you cancel. If they lower your rate, you may not need to close the account after all.

Step 4 — Put Everything in Writing

I can’t stress this part enough—document everything. 

Picking up the phone to talk to your sales rep or support center isn’t enough. Unfortunately, you can’t take their word for anything unless it’s put in writing. 

The same concept applies to when you first signed up for a merchant account. Your sales rep could promise you the lowest rate on the planet during your meetings, but the only thing that matters is what’s signed and put in writing. 

If you need to provide a clause for cancellation while you’re still under contract, gather all physical and digital messages that were sent by your provider. 

For example, you may have recently received a notice of rate increase that includes the option to opt-out of your contract within 30 days. You’ll want to have this notice ready and reference it when you’re documenting the account closure. 

Step 5 — Draft a Cancellation Letter

It’s highly likely that you’ll need to submit a formal letter to cancel your merchant account. To be on the safe side, you can send it as certified mail so that you have proof of delivery.

You can also send additional copies of the same letter via fax and email to your processor.

The letter should be one page at the absolute max. Stick to the specifics without adding any extra fluff or commentary.

• Business name
• Merchant ID number
• Name
• Address
• Phone number
• Date of letter
• Effective date of cancellation

You can always reference things like the section or clause of your agreement that outlines the cancellation terms. Or you can mention the specific notice you received of a new fee or rate increase that gives you the right to terminate the account.

To ensure your cancellation letter is iron-clad, ask the lawyer who reviewed your contract (back in Step #2) to draft this for you.

Step 6 — Return Your Equipment

This only applies if you’ve leased equipment, like terminal hardware, POS systems, mobile card readers, and similar items. 

Leasing this stuff is always more expensive than buying, so don’t get hit with even more fees by forgetting to return them or failing to return them properly.

Ask your provider to provide you with written instructions on how to properly return your equipment to avoid paying a fee. 

I strongly recommend taking photos of everything before you mail them or bring it back. I’ve seen processors try to charge merchants because the items were damaged (even though the merchant claims they weren’t). 

So taking this extra step can be useful and prevent any surprise charges. 

Step 7 — Do NOT Close Your Bank Account Just Yet

Don’t close the bank account associated with your merchant account.

Even after you’ve terminated your arrangement with your processor, you’re still on the hook for any disputes or chargebacks from transactions prior to the cancellation. Typically, the timeline for customers to file a chargeback is up to 120 days. But this depends on the card network, dispute reason, and in some cases, the business type. 

So make sure to keep that bank account open for at least a few months, if not longer.

Closing that account early can have severe consequences. If a customer files a chargeback and your old processor is unable to recover those funds from your account, they could put you on the TMF/MATCH list—which would make it incredibly difficult (or impossible) to open a new merchant account. 

Step 8 — Get Confirmation That Your Account Has Officially Been Closed Penalty-Free

In a perfect world, this process will happen automatically. But not every business gets so lucky here, and it’s completely dependent on the processor.

Processors are in the business of making as much money as possible and earning sky-high profits. So following-up with canceled accounts isn’t really at the top of their priority list. 

Get a digital and physical copy if possible. But either should be sufficient. 

Hold onto this document forever. You don’t want to be in a position where your processor tries to collect funds or monthly minimums from you in a year or two, only to not have any evidence that they’ve recognized your account closure. 

Can You Cancel Your Merchant Account If You’re Still Under Contract?

The ability to terminate your merchant account while still under contract will largely depend on the terms of your merchant agreement.

In some cases, you may need to pay a small cancellation fee—like $500. But if you have a liquidated damages clause in your contract, it’s going to be much more expensive.

That said, there are certain “get out of jail free cards” that can be played. 

If your processor violated the terms of their agreement by padding assessments, increasing rates, or adding new fees, you could be able to cancel penalty-free. 

Reach out to a merchant consultant for advice and next steps here. Here at MCC, we’ve worked with nearly every processor in the industry, so we know based on experience how they handle these situations. 

Valid Reasons to Terminate Your Merchant Account

To be clear, you can cancel your merchant account at any point without clause—but you might not be able to do so for free.

It’s also worth noting that terminating your merchant account based on high fees alone isn’t a good enough reason. Rates are negotiable, and it’s so much easier to just negotiate new terms with your existing provider instead of changing your entire operations with a new one.

That said, you may want to consider terminating your merchant account or switching providers for any of the following reasons:

• Your processor can’t grow with your business.
• You need a special type of custom function that they can’t provide.
• You want an integrated payments system to streamline internal processes (and your provider can’t support it).
• You’re working with a high-risk merchant account provider but your business is no longer considered to be a high risk.
• You’re going out of business.
• You’re selling your business and the new owner doesn’t want to use your existing provider.

Even if your processor is doing something super shady or unethical, like padding assessment fees, it still may not be in your best interest to cancel the account. 

You have tons of leverage in these scenarios, and there’s a high probability that you can recover those finds and negotiate lower rates. 

Should You Pay a Fee to Close Your Merchant Account?

I don’t recommend paying a fee to close your merchant account. Unless it’s a small, one-time fee of $500 or less, it’s not worth it in the long run.

Never pay liquidated damages. This will close you thousands, if not tens of thousands of dollars per month for the duration of your contract—even after you’ve canceled the account. 

You’re better off sticking with your existing provider through the end of your contract or renegotiating your existing terms.

Make sure to consider the intangible costs of canceling your account. You could have lost opportunity cost if you have any downtime during the switch. Plus, you’ll likely incur a ton of new onboard fees with your new provider—not to mention the time it will take to learn a new system and your operations up and running smoothly again. 

So even if your processor only charges a flat $500 fee to cancel the account, your total costs will be in the thousands. 

Final Thoughts

Closing your merchant account for free is definitely possible, but won’t always be easy.

In my experience, only 5% of businesses should consider terminating their merchant accounts. High fees can be negotiated with your existing processor, and you won’t have to deal with the hassle of switching and setting up new operations. 

If you’re still thinking about canceling your merchant account, contact our team here at MCC first. We’ll give you a free audit to help you identify any cost saving opportunities with your current provider. We can also let you know whether you’re getting a good deal or likely to get a better deal elsewhere.