Credit card processing is an important part of most businesses, and is necessary in helping them make more sales. When businesses set up merchant accounts with processing companies, sometimes a portion of their funds are held back in reserve by the banks to guard against future losses. While the money is held for sometimes up to a year, eventually it gets returned to the merchant at the end of the reserve period, which is usually between six months and one year.
Banks will typically hold a portion of a merchant’s monthly revenues in a non-interest account to guard against future losses due to chargebacks. The actual amount held back and the duration it’s held is determined on an individual basis based on the risk calculations made by the banks. Reserves can be set up not only when the merchant accounts are first established, but later on as well as determined by the banks.
Not all business have reserves imposed upon them. Reserves are generally only put upon businesses considered by banks to be high-risk businesses, with some examples being travel agencies, dating services and prepaid telephone card sales. Other factors that banks look at in determining what is a high-risk business include high processing volume, large-ticket sales and a business owner’s personal credit history. If an owner has had credit problems in the past, it’s almost a sure thing the bank will impose a reserve account on the business. Some businesses, with or without a reserve, will not be allowed to accept credit cards. These can include online gambling sites, escort services and others who credit card processing companies will refuse to do business with.
When searching for merchant accounts, it’s best to get proposals from several different companies to be able to compare offers. Finding out the various processing rates and fees, the policies on rolling reserves, customer service standards and more will help to make the best decision. Talking with a processing company about the risk management tools used in determining who is issued a reserve and what types of fraud prevention services are in place to protect a business can also help in making a smart decision. In the case of a rolling reserve, a merchant’s performance is reviewed each month with eventually the reserve being lowered or eliminated altogether. By working with a processing company and banks, merchants can easily navigate their way through reserve accounts.