How to Protect Your Business Against a Merchant Account Reserve
Frozen Revenue Doesn’t Do You Any Good. Get Every Dollar You Earn.
Obviously, before you can start accepting payment card for your business, you’ll need an account with a merchant bank, called an acquirer. These accounts are often provided when you sign up for a processor, but you may also secure one separately. Of course, even once you get a merchant account, your ability to receive the funds from card transactions is not guaranteed.
Plenty of businesses end up in a situation in which their acquirer holds a large chunk of their revenue in a reserve account. This can last for months and can put serious hardship on your business. After all, you’re trying to pay vendors, employees, cover overhead, and market yourself, all with access to just a small fraction of your money. You need that revenue.
What is a Merchant Account Reserve?
A merchant account reserve is a portion of a merchant’s revenue held by an acquirer. How much of your revenue is held in the account reserve depends on your business’s level of risk. So called high-risk merchants can have upwards of 25% of their monthly revenue frozen in a merchant account reserve for up to six months before the acquirer finally releases it.
Why do they do this? More than anything, acquirers see your merchant account reserve as a kind of insurance to protect themselves against chargebacks.
You might be forced out of business if your chargeback-to-transaction ratio suddenly spikes, and the bank doesn’t want to be left holding the bill for all those chargebacks. If something like this happens, the acquirer will freeze your account, then use your account reserve as financial “padding” between themselves and you.
Top 5 Tips to Protect Your Business
Ideally, you’d want to avoid an account reserve altogether; of course, that’s not always possible depending on the nature of your business. However, there are steps you can take to minimize your risk and secure the best deal possible when determining your account reserve:
#1. Learn the Rules
Before you sign your contract, ask your prospective acquirer about their rules and processes regarding account reserves and freezes. Most will tell you that they will hold a certain amount in reserve once you reach a high-enough processing volume. Find a processor or acquirer who can offer you a figure that you’re comfortable accepting as an account reserve.
#2. Be Optimistic About Your Revenue
Get approved for a higher processing volume than you think you’ll need at the beginning. It’s not just the power of positive thinking; this will give you room to grow without suddenly breaching your pre-approved account limit.
Make sure your processor is aware if you’re expecting a sudden increase in transaction volume. For example, if you’re launching a new product that you expect will be a hit, find out how your bank plans to handle the increased volume. They will be able to help you plan your cash flow and expenses, or possibly to upgrade your level of service.
#4. Offset the Burden
A lot of merchants opt to secure more than one merchant account. This way, one single bank doesn’t control all your revenue. Even if worse comes to worst and your account is frozen, you will still be able to conduct business and have an open stream of revenue.
#5. Minimize Chargebacks
Your chargeback-to-transaction ratio is one of the main determining factors in deciding whether your business is labeled “high risk.” Thus, minimizing your number of monthly chargebacks is one of the best ways to protect yourself.
Risk Vs. Reward
All business involves some level of risk, but that doesn’t mean you can’t take steps to minimize those challenges. Contact us to learn more about reducing your chargeback rate today.