There is no legitimate way to guarantee that a payment processor will never hold the amount, or will never review your account activity, or will never review the fund movement.
If you are an India-based SaaS founder that is selling to customers in the United States, United Kingdom, Europe, Australia, or New Zealand, then we can potentially suggest you a smarter approach, and that is to build a proper international payment processing strategy, and you should do it from the beginning of your business.
A payment account should never be treated as if it was simply a bank account where every dollar you process is immediately available. Technically that is not possible. Payment service providers, they manage the risk which is associated with fraud, chargebacks, disputes, refunds, and unusual transaction pattern. And the agreement that you sign with the payment processor simply allows the processor to take measures such as reserves, delay in payout, and in certain circumstances, holding the funds and even terminating the account.
So let us now understand why can payment processor hold the SaaS payments and what you can do about it.
A payments processor can definitely review or delay the payout when its internal risk identification system finds out something which requires deeper evaluation. Some of the factors that may contribute to this kind of additional scrutiny includes situations such as sudden increase in the transaction volume of your business, or significant change in the average transaction order amount.
Sometimes unusual changes in the customer geography is also a risk factor. For example, most of the times you accept orders from the US and suddenly you start getting a lot of orders from New Zealand. This can trigger a risk review. Along with that, the conventional reasons such as increasing chargebacks or payment disputes, high refund rates are also critical factors which trigger account review.
If you ever make any changes to your business model, or you modify the products, or you add a very new element to your website, or if you have some kind of inconsistent business information, all of these can be the reason why a SaaS payment gateway company can potentially hold your amount.
This does not mean that Indian SaaS businesses that are accepting international payment should be automatically considered high risk. There are many factors that goes beyond it.
The most important thing that you should understand is that your payment processor wants to know that who you are, what you sell, who your customers are, where your customers are located, and how does your transaction activity works. If you are transparent with your payment processor and if you follow the terms and condition that is set within the terms of agreement, then there’s a high possibility that your SAS payment gateway and merchant account will work in the right fashion for long time.
Let us now understand, does billing US customer from India can cause payment problems?
The answer is no, not necessarily. An Indian SAS company can definitely sell software and digital services to customers that are located in other countries and this includes US and UK as well. However, international businesses need to make sure that their company information, payment account, website, invoices, banking information, and actual transaction activity is consistent.
For example, your payment processor should be able to clearly understand your legal business entity, who are the owners of the company. The processor should also know what kind of SAS product you sell, what is the pricing model, do you accept recurring billing from your customer, what is your expected monthly processing volume, what is the average ticket size associated with your website, where are your customers from? Are they from Europe, are they from Africa, are they from Latin America, or are they from Asia Pacific? What is your refund policy? Is your refund policy simple to understand?
Your customer support process, are you able to handle customer care issues in the right way? The bigger your international business becomes, then you it will become more important for you to have all these documentation and consistencies in the right track.
That brings us to another question, which is, can an Indian SAS founder use US LLC for international business?
I would say that for some SAS founders in India, establishing a US LLC may definitely be worth considering as part of their broader international business structure planning. A US LLC can provide you a legitimate US business presence that has got genuine commercial reasons for operating through a US entity.
For some founders in India, setting up a US LLC may be worth considering as a part of the broader international business structuring. When you get a US company, then it provides you a legitimate US business presence for your business that has got genuine commercial reason for operating through a US entity.
However, there’s one thing which is important and it is a critical distinction.
A US LLC does not automatically guarantee a US bank account, EIN, payment processing approval, or access to a particular payment processor.
Every service provider has got its own terms and condition. They have to follow KYC, KYB, underwriting, eligibility, and compliance guidelines. If a US structure makes sense for your SaaS business in India, then the setup simply involves setting up a US LLC, getting a registered agent, getting a EIN from the IRS, setting up a US business bank account, and then applying to a payment processor to get a merchant account. And remember, after that, you have to follow the appropriate business and tax documentation activities as well. The entire structure that we have discussed here should represent your actual business in the most accurate way.
Let us quickly understand what is the role of an EIN, especially for India based SaaS founders.
When an India based SaaS founder sets up a US company, then he gets a EIN or Employer Identification Number. It’s basically a federal tax identification number that is issued by the IRS. And it is it is only given to eligible entities and businesses. An EIN becomes an important part of establishing and operating a US company. But remember, it is not the same thing as payment processing account approval.
In another In another words, we can say that US LLC is the first thing you need to set up, then you get a EIN, then you get a business bank account, and then you get a payment processing account for yourself. All of these are related pieces of the proper US business structure, but they are they require separate approvals and they have separate relationships. Having an EIN does not mean that the bank or the payment processor must approve your application.
Let us also understand that do you need a registered agent for a US LLC?
A registered agent is used by US business entity and this is primarily done to receive certain official legal and state correspondence on behalf of the company. For Indian entrepreneurs that are setting up a company in the United States, a registered agent can play a very important part of maintaining the company’s state level compliance requirements. The exact requirement depends on the state where the LLC is being formed. Most of the Indian founders prefer to set up companies in Wyoming or Delaware.
Can a US LLC help you in getting a payment processing solution like Stripe and Paypal?
The answer is potentially yes, but not always.
Company formation in the US and getting a US payment gateway are two different things. When you establish a US LLC, then you may be able to apply to payment processing service providers, and for this, you can use your US business information.
However, the approval is always subject to the eligibility and the underwriting guidelines of the payment processors. US-based payment processors consider various factors when they approve or decline the application for merchant account and payment gateway.
They check the business entity, ownership structure, industry, product or services, previous processing history, expected volume, average ticket size, customers location, chargeback exposure, website and business documentation, and banking arrangement.
The key is not simply having a US LLC. The key is to have a legitimate, properly documented business structure that accurately represents how the company operates and who are the people behind it.
Should Indian SaaS founders diversify payment providers?
Payment diversification is definitely a very sensible business continuity strategy, but you should never think it like opening multiple accounts simply to bypass payment provider’s restriction. There’s a major difference between payment diversification and payment processing circumvention.
A genuine SaaS company, whether operating from India, UK, Dubai, Singapore, or Thailand, may evaluate different options for different purposes. For example, it may compare direct card processing, merchant accounts, payment gateways, merchant of record platforms, bank transfer, alternative payment methods, and multi-currency bank accounts.
But if the payment service provider restricts or terminates an account, then attempting to conceal the same business activity from another provider can definitely create serious compliance problems. And that is why we say that the strongest strategy is to always be transparent when it comes to communicating with the underwriting team and always give accurate business information.
Is a merchant of record an alternative for SaaS?
For SaaS and digital product businesses, a merchant of record solution can definitely be an alternative to managing every part of payment and sales tax infrastructure yourself. A merchant of record can basically handle many responsibilities that are associated with transactions, and most of the times this includes payment collection, sales tax, refunds, chargebacks, and compliance. Platforms such as Paddle and Lemon Squeezy, they operate Merchant of Record models for qualifying businesses. But remember that MOR isn’t automatically the best solution for every SaaS company.
You should always compare the fees, product eligibility, supported countries, payment methods, payout schedules, subscription capabilities, customer experience, tax handling, integration requirements, and account approval requirements. The most important point over here is that Merchant of Record is a different payment business model and is not simply another credit card processor.
What about a multi-currency business bank account?
A multi-currency business bank account can definitely help some international companies in receiving, holding, and managing supported currencies, but you should never confuse banking with payment processing. They solve different problems.
A payment processor will allow you to accept payments from your customers through a supported payment method. However, a business bank account is where the eligible funds can be received, held, converted, or paid out. For international SaaS business founders from India, having both pieces properly structured can definitely make financial operations easy, but remember that the eligibility depends on the specific bank or financial institution.
What should Indian SaaS founders do before they are scaling?
We would suggest that keep your information consistent. For this, you have to make sure that your website, legal entity, payment account, invoices, contracts, and banking information, they accurately describe the same business that you operate. There should not be any inconsistency.
Next, you must understand the terms and conditions that are presented by your payment service provider. Before processing any significant volume, or even before signing the agreement, make sure that you understand your provider’s rules around reserves, payout delays, refunds, chargebacks, prohibited activities, and account reviews.
Make sure that your key documents are always ready with you, and these include invoices, customer agreements, refund policies, product documentation, business registration documentation, ownership information, transaction records, and any communication with the customers.
Always monitor your processing volume. For example, if on your SaaS website every month you process about $5,000 of transaction and all of a sudden you start getting orders of around a monthly volume of around $100K, then this will automatically trigger a risk review. And that is why if you’re expecting a larger transaction volume to come in on your system, then make sure that you get a prior approval from the payment processor.
They may ask you what marketing initiatives have you taken, and you should give them all the information. Remember, don’t wait for the risk system to discover the growth first. Always tell the payment service provider about your future transaction projection.
Your chargeback rate and refund activity can have a significant influence on the risk profile. And that is why always handle every customer dispute in the best way possible. Try to keep your chargeback and refund ratio under the approved limit of the payment processor. Your chargeback ratio should never cross 1%. For this, have a clear refund policy and process and have systematic process to handle disputes with customers.
In your business bank account, maintain working capital. Don’t assume that every dollar you process today is available to you for immediate spending. A financially healthy SaaS company should always maintain enough cash flow liquidity to continue operating if the payout is temporarily delayed. Along with that, this reserve also help you to initiate the refunds to the customers without waiting for arranging the funds from other sources. And yes, always evaluate payment diversification whenever needed. Depending on your business model you should consider whether having one or more payment channel makes sense for your business. The objective here is business continuity and not bypassing restrictions.
Can QuadraPay help SaaS businesses with international payment processing?
Yes, QuadraPay can help eligible businesses evaluate international payment processing solution. And this is based on the business model, target market, processing volume, transaction profile, and the payment requirements. For SaaS companies that are selling to US, UK, European, Australian, or New Zealand customers, the right solution may depends on whether the company needs international merchant accounts, credit card processing, recurring payment processing, payment gateways, e-commerce payment processing, multi-currency payment acceptance, alternative payment methods, a merchant of record solution, or a broader international payment strategy.
Remember, at QuadraPay, we do not promise guaranteed approval or guaranteed payout availability. The approval of any solution is subject to the terms and condition and underwriting principle of the partner service providers. The best we can do is to introduce you to the solution providers.
Can QuadraPay help Indian founders establish US businesses?
Yes. QuadraPay can help Indian entrepreneurs set up US LLC, get a registered agent service, and we can also help founders with EIN assistance and US business setup options. However, all of this is subject to the requirements of relevant government agencies, banks, and the service provider.
For Indian founders who genuinely need to set up a US business presence, the broader structure will look like: first, you need to get a US LLC, then you get an EIN, along with that you get a registered agent, then you get a business banking account, and then you get a payment processing solution which allows you to accept orders from international customers.
But we want to ensure that you know that this should be built for a legitimate business purpose and not simply to obtain a payment account. Getting a US company does not automatically guarantee you that you will get a bank account, EIN, or a payment gateway. However, to get a payment gateway and bank account and EIN, you must have a US company.
Once your company is set up and your payment processing account is set up, then after that, you also need to look at the tax and the regulatory objectives. And for that we can connect you with some providers that offer such services.
What is the biggest lesson for Indian SaaS founders?
The biggest lesson is not that payment processors freeze money. The bigger lesson is that the payment infrastructure is definitely a part of financial risk management. If your entire SaaS business depends only on one payment processor and one banking relationship, then you are basically creating a potential operational bottleneck for your business.
A stronger approach will be to set up a business with accurate information, have proper documentation, appropriate payment service providers to work with. And you should have good transaction hygiene, stronger cash reserve, and legitimate payment diversification.
You should build this infrastructure before you start accepting any transaction. Because when your SaaS starts to grow rapidly, the last thing you want to discover is that the payment architecture was not built for your business type.
If you need any help in setting up a US LLC from India or need help with bookkeeping of your US LLC, then you can contact QuadraPay. Our team will potentially help email us now at info@quadrapay.com
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