3 Top Questions About Merchant Account Reserves

by
in Blog
on Tuesday, 25 August 2015 15:44

A payment service provider’s reserve policy is just as important as its pricing. But merchants often don’t consider merchant account reserve policies when choosing an account, and that can be a mistake.

Here are the three top questions about merchant account reserves you should consider:

1. What is a merchant account reserve?

The reserve is the part of your revenues from payment card transactions that the bank holds back from you in an escrow account to protect it from the possibility of losses related to chargebacks and other merchant account issues. Remember that even though this money is in the temporary control of the bank, it belongs to you, the merchant. You will eventually get all the money held in reserve.

How much the reserve is and how long it is held vary and should be disclosed to you during the merchant account application process. The level of risk is involved in your business is a major factor in how large the reserve will be. Reserves may sometimes be imposed on existing merchant accounts because of problems, but the details of how and when this will happen must be spelled out in the merchant agreement.

2. Which merchants are required to have a reserve?

The largest reserves are imposed on the highest-risk merchants. There may be other requirements as well. Some of the business types that may be subject to reserves include timeshare resellers, travel agencies, diet programs, prepaid card sellers, diet programs and others likely to have some chargebacks. You may have to provide a reserve if you’re in a low-risk business but sell big-ticket items, have a very high volume of transactions or if you personally have bad credit.

Many high-risk merchants will not be allowed to have a merchant account, whether they’re willing to accept having a reserve held back or not. These include lotteries, gambling businesses, escort services, online tobacco sellers, credit repair company and others. These and similar companies will have difficulty finding acquirers in the United States that will let them have merchant accounts.

3. How are reserve parameters determined?

The merchant account provider performs calculations to determine how much funding is required to cover risk exposure and then calculates a percentage of monthly safes that must be withheld, in most cases. A full reserve is usually required to be built up over the course of several months, perhaps 180 days. The acquirer periodically reviews merchant performance and decides if the reserve amount should be returned or held longer.

When a rolling reserve is established, the oldest month of reserve funds is released at a specified time, then the following month’s reserved funds are released a month later and so on until all reserved funds have been released. Some businesses may be required to maintain a reserve indefinitely.

One Of Many Things For Merchants To Consider

Every payment service provider has its own policies, and understanding the reserve policies of any company you’re considering is crucial to understanding how your funds will be handled and whether the company is a good match for your business. In some industries, however, choices may be few.

Before making a final decision on a merchant account, also consider all rates and fees, the quality of customer service, fraud prevention services and other important factors.

At PayVisors, we’re a sales consulting company, and we may be able to help you find the right merchant account for your business. Contact us right away to learn more about what we can do for you.

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