Protecting Your Business with a Merchant Account ReserveComplex Merchant Profiles

Protecting Your Business with a Merchant Account Reserve


Last Updated on March 22, 2024

As a business owner, you know it’s important to protect yourself from any potential losses that could occur due to fraud or chargebacks. A merchant account reserve is a great tool because it safeguards both you and your processor from losses, empowering you to confidently conduct transactions.

What is a Merchant Account Reserve?

A merchant account reserve is a secure account utilized by payment processors to retain a segment of a company’s funds. These funds are typically held for a certain period of time before being released back to the business. Once the reserve is established, it will typically remain in place for the lifetime of your merchant account.

Think of it as your “rainy day” account. If you’re ever unable to cover fees and costs associated with payment processing — whether its unexpected increases in chargebacks or unforeseen world events — the funds in your reserve account will be used as a failsafe to keep you going. The exact amount held varies by processor but it is usually between 5%-10% of the total amount processed by the business.

Types of Reserve Accounts

There are three main types of reserves:

  • Rolling Reserves — A rolling reserve holds a percentage of your sales back each month and releases them back to you after a specified period of time (usually 3-6 months). By holding a percentage of your sales the processing company has sufficient funds to cover any chargebacks or other losses that may occur. Your average processing volume and chargeback count are often determining factors in how much money is held and for how long.
  • Fixed Reserves — A fixed reserve is a convenient way to keep your finances in check, as the processing company will hold back a predetermined amount of funds for you every month. This can be anticipated and budgeted for, allowing you to plan ahead more accurately over an extended period of 6-12 months before the reserves are released back into your account.
  • Hybrid Reserves — A hybrid reserve is a combination of a rolling reserve and a fixed reserve. This type of reserve gives the processing company more flexibility to adjust the amount held back based on your sales volume and the risk associated with your business.

Protections Offered from a Reserve Account

As mentioned previously, establishing a reserve account helps mitigate risk for both your payment processor and your business. They ensure there are sufficient funds available in case you’re unable to cover any disputes that arise from customer payments made via credit cards. This helps protect you from future financial hardships due to the costly fees associated with such events.

Things to Keep in Mind

Setting up a reserve fund will only be financially burdensome if you’re not prepared for it. Holding funds in a reserve can impact your cash flow, so you need to make sure you’re aware how much money will be held in reserve and for how long so you don’t overspend on operational costs, payroll, etc.

Utilizing the right payment solution

Different payment processors have different requirements, fees, and approaches to dealing with reserves. You want to look for a processor that knows the unique challenges of your industry and is able to tailor its approach to the unique needs of your business. Don’t get stuck with a payment processor that uses a blanket approach for all businesses, no matter the size, industry, or scope. Be sure to do your research, ask the tough questions, and think strategically when deciding which processor to work with.

Final Thoughts

Merchant account reserves serve as a crucial tool for businesses that engage in complex and/or high-volume transactions. These accounts enable merchants to protect themselves against chargebacks, fraud, and other financial risks that could threaten their bottom line. While reserve funds may initially impose additional costs and restrictions on your business, they also provide a measure of stability and security that can ultimately benefit both your business and customers. Overall, merchant account reserves are an important component of modern commerce, providing a way for businesses to manage financial risk and protect their bottom line.

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