Card Terminal hire agreements – 5 tips on what to watch out for

Terminal hire agreements are the most contentious issue for merchants judging by the complaints and calls for help we get.  If you’re about to sign a terminal hire agreement, heres 5 tips on what to expect and look out for.  If you’ve already signed one then pull that agreement out of the drawer, blow off the dust and make sure you understand the following.  It could save you a material sum :

1) Read the agreement

This is basic and it pains me to write this, but its amazing how many people rely on the word of the sales person and sign agreements without reading.  Yes, agreements are 6 pages long, dreary and in small font but it takes take less than 10 minutes to read.  We often hear people saying “But the sales person said……” only to later find out thats not what the agreement says.  Sales people often lie, sometimes to the extreme.  If the sales person says you can terminate on 1 months notice at no penalty, get him/her to show you where in the agreement it says that.  If you don’t read the agreement upfront, don’t complain when things don’t turn out the way the sales person told you.

2) Minimum Term

Almost all agreements feature a minimum term, during which you pay a penalty to terminate, and almost all merchants hate this “tie-in”.  But its a necessary evil.  Think of it this way – the terminal provider has invested a capital cost in that terminal and if he doesn’t receive the full rental payments over the minimum term from you then he will be out of pocket.  He could recover some of the costs by re-renting the terminal, but merchants generally don’t like used terminals so the rental will be lower, and then theres delivery/recovery/reconfiguration costs.  So its not unreasonable for the terminal provider to want to recover his costs and earn his margin from the initial lessee.  The important thing for you is to be aware upfront of what that minimum term is.  Read the contract and ensure this matches your expectation.

3) Early Termination Fees

Linking to the point above, if you do cancel the agreement within the minimum term then expect to pay an early termination fee.  How much varies from provider to provider but typically :

  1. Rental payments for the remaining minimum term.  So if you pay £15 per month and cancel with 10 months to go, expect to pay £150;
  2. Some providers give you a 3%-5% discount.  They are getting their money earlier than expected so pass this “time value of money” to you;
  3. Some providers (noteably First Data Global Leasing) charge a “re-stocking fee” of around £190 in addition to the rental payments at (1).
  4. If you sign Paymentsense’s “Placement Agreement” then you’ll also pay a £120 fee for cancellation at any time, even outwith the minimum term.

Remember to add VAT to the above.

4) Does the Consumer Credit Act 1974 apply ?

If you are a sole trader or a partnership and may want to rely on the Consumer Credit Act 1974, then do check it applies to your agreement.  The Consumer Credit Act 1974 permits (in most cases) a cancellation of your terminal agreement after 18 months without paying any further rental payments.  Why might it not apply ?  Well, some suppliers seek to avoid the protections offered to merchants by the Consumer Credit Act 1974 by structuring their terminal rental agreement as a “membership” rather than a hire agreement.  Cardsave, which is now part of WorldPay, was infamous for this ploy.  So do check and ask the question if in doubt.

5) Notice of Termination

Of all the things noted above to watch out for, this is the one I find most objectionable.  Once your minimum term is over, shouldn’t you be entitled to terminate with minimal notice at no penalty? Sounds reasonable – the terminal provider has earned their margin and recovered their capital outlay.  With most providers, this is the case and only 1 – 3 months notice is required to cancel the agreement after the minimum term.

There are some providers who structure their Notice of Termination differently so as to lock you in for a longer period :

  1. After the initial Minimum Term expires, a second minimum term is automatically triggered.  Typically, of a term of 12 months to 2 years and termination penalties apply within that second minimum term.  So a 4 year minimum term agreement will automatically become a 6 year minimum term agreement.
  2. Notice of termination must be served within a very short time window, sometimes 12 months before the end of the original minimum term.  If you miss the window then your agreement automatically rolls to a 2 year extension.  Often you won’t know 12 months out if you do want to cancel the agreement and most of the time you will have entirely forgotten about this clause.  Most people will think about this 3 or 4 months before the agreement ends, at which point they will be too late to avoid the 2 year extension.

WorldPay’s terminal agreements automatically roll for another 18 month period (click here) and Handepay’s automatically roll for 2 years.  Handepay also rent their terminals from a sister company (Merchant Rentals plc) so be sure to submit your termination notice to the correct company or Handepay will argue they haven’t been notified in accordance with your agreement and will automatically roll it for a further 2 years – submit recorded delivery!!!

In summary, before you sign :

    1. Read your agreement;
    2. Understand any minimum term, early termination fees and requirements for notice of termination;
    3. Does the Consumer Credit Act 1974 apply – are you signing a hire agreement or a membership agreement ?

Additional help

Screenshot_007If you are unfortunate enough to be locked into an agreement, all is not lost:

  1. Often you find it can still be worthwhile to cancel an agreement early, incur a termination fee and move to a cheaper supplier.  Do your sums carefully – as a rule of thumb if your monthly savings are higher than your monthly terminal hire costs then switching suppliers is likely to be worthwhile
  2. On Cardswitcher you can now automatically re-run your quotes on a date in the future to co-incide with your notice period.  When you get your quotes simply click on the section at the top right (as shown) and set the date.  We will automatically re-run your quotes and email you a summary.  It can also serve as a handy reminder as to when you need to submit your Notice of Termination to your current provider.


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