Strategic Advisory in Payments
& Payments Technology

Homework For Sellers In The Payments Space: Have Your Reporting Ready

In making acquisitions of merchant portfolios, residuals, or merchant processing ISO’s, would be sellers must understand what will be expected of them in terms of what buyers will request of them pertaining to due diligence. Part of any due diligence request for these types of acquisitions will be seller’s monthly residual reports. These reports are critical to a buyer’s ability to evaluate the portfolio asset and ultimately assign a valuation to it. For sellers, here are some tips on residual reports that you should contemplate prior to committing to the acquisition process. They will help you save time and assure you peace of mind in these dealings.

1) Understand that for smaller deals, buyers will need to see, at the very least, your most recent 4 months of residual reports. For larger deals, expect buyers to request anywhere from 12-24 months of residual reports. So, prepare yourself accordingly. Most experienced buyers can turn an offer around very quickly from the time when they receive the requisite reports.

2) Buyers will be looking for the source reports, not some spreadsheet you created with the information you think they’ll need. Source reports typically come directly from the back-end processor. You may not be familiar with these source reports depending on where you fall in the payment’s industry hierarchy; owners of ISO’s will be familiar with these whereas agents may not be. In either case, it’s the source reports that buyers will need.

3) Don’t let your ISO or processor tell you they can’t provide you the reporting you need or in the format in which you need it. They can! Tell them what you need and don’t take no for an answer. You’re entitled to see this data. They’re your accounts!

4) The more comprehensive the residual reports are, the better off you will be. Especially with larger acquisitions, where buyers’ analysis of the book of business will be very sophisticated, buyers will be looking for source reports with a granular level of detail.

5) Understand why buyers will require the MID’s in the reports. For a lot of sellers, disclosing their MID’s makes them nervous. They feel a disreputable buyer may take the MID’s and try to steal those merchants. In fact, most buyers don’t even need the merchant’s d/b/a, contact information, or address. Buyers need the MID’s because they function as a numeric identifier for each merchant account. This allows them to track the accounts month to month in the different analyses they will employ to evaluate the portfolio.

6) Do not ever give buyers your monthly residual reports in any file format other than Microsoft Excel. The entire purpose of you providing buyers with these reports is so they can process the data. This necessitates that buyers can manipulate the data to run the various analyses they will perform on the portfolio.

7) If you don’t want your ISO or processor to know that you’re shopping the deal, you should get in the habit of requesting these reports in the detail and format suggested above from the get go. That way you will always have them on file and never have to put in a request which may alert your ISO or processor that you’re going to market.