22 Dec Why Some Merchant Providers Insist on Reserve Funds?
After starting a business, most new entrepreneurs have a million things on their mind. In fact, some people forget about all the things they have to do to start making money. One thing a person cannot forget to do is open a merchant account. With this, an individual can start accepting credit card payments in a number of ways and with ease. However, some new entrepreneurs discover that they must go through hoops to open an account. In fact, many have to provide some money to have a reserve fund. There are three reasons why this is often the case.
Simply put, when engaging in credit card processing, many small business owners will have to deal with fraud. This is often the case whether a person sells items via an e-commerce site or in-person. To minimize the risk, most merchant account providers will work with the customer to set up the right system. However, this is not always enough, and some merchant providers will demand a reserve fund. This is simply part of doing business and is hard to avoid.
A client who does not like a product or service can file a chargeback. Other times, a person will file one if their child or loved-one used the credit card without their consent. Either way, this is costly and will cause a small business owner to lose a lot of money. Furthermore, the merchant provider will also miss out when dealing with chargebacks. For this reason, if a person is in a high-risk industry, he or she may need to throw down some cash to ensure that the merchant provider does not end up losing out on the transaction.
Up and leave:
With a credit card processing account, some clients do not have much loyalty and will dash to a competitor at the drop of the hat. This can leave the original provider stunned and annoyed. While a solid provider with great services will not have to worry much, it still must protect its name and image. One way to do so is to require a customer to pony up some cash in a reserve fund. That way, a client will not leave in the middle of the night for another company.
A small business owner should not hate or fear a reserve fund. In reality, it is part of doing business and is not a huge problem in itself.