Merchant Account Cash Reserve Explained:
What is a Cash Reserve? Sometimes also called a “rolling reserve,” “daily discount,” “or personal guaranty,” a cash reserve is a pool of money held by the merchant account provider to protect against losses caused by a merchant. A cash reserve can be established during the opening of the merchant account by the business providing the funds upfront, or by the merchant account provider holding back a percentage of the merchant’s daily sales until the reserve amount is met.
Cash reserves are usually only imposed on business types that are deemed as “high risk” when the account is established; however, any business that suffers from a rash of chargebacks or fraudulent transactions may have a cash reserve imposed upon them, often with little or no warning. Cash reserve funds are usually released within 60-90 days from the day that they were first withheld. With a “rolling reserve,” the individual transactions that make up the reserve are held and then released at a predetermined interval. Cash reserve policies vary by merchant account provider.
About Phillip Parker
Phillip Parker is a former merchant services sales agent who believes the industry has been overrun by people who engage in fraud and deception in order to steal from hard working business owners. He created this website to help you avoid the bad players, save money on fees, and to get peace of mind with your merchant account. If you would like to help support his work, learn more about our cost reduction service. We can evaluate your statement, tell you exactly how much you're overpaying, and then help you dramatically reduce your fees with your current credit card processor. Looking to switch instead? See our list of the best merchant account providers.
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First off, would like to thank Mr. Parker for the informative website, and helping the little guy (as well as I’m sure some equally worthy financial giants in waiting) become experts at understanding this convolution.
I have not done credit card processing for over a decade, so I am surely outdated, however how has there not been outrage over these reserves? Or the way we are left in the dark on terms and condition involving reserves? Ten years ago, a reserve killed my business, a very good business and a growing small business that supported my family. It was deemed a chargeback issue, although I was beneath the percentage. 20k taken, with another 30k to be taken that I just did not have at the time (20k was about 19k more than I had ever had in a bank account before that year.) It was NOVA, apparently a huge reseller, and I was told by the rep I talked to two things: 1. I shouldve planned for this, and, conveniently, when asked if the thousands of reserve accounts they possessed were in non interest bearing accounts was told that ‘is not a requirement’ by law.
Today with multiple platforms and heavier competition, the rules and laws seem to favor the little guy a bit more. And please do not get me wrong, I COMPLETELY understand a company’s need to protect against fraud, and upfront policies like rolling seven day reserves seem more than fair, and can be planned for (going to your bank account and seeing in 24 hours a +22k balance go to a -4k balance cannot), however my ramblings lead to this: how can these companies still get away, how is it legal I mean, to have such vague rules and double talk regarding what they can pull, when, and why?! It happens every day to hundreds and hundreds of businesses STILL from the research I have done, not detailed but still.
My prime example is Square, which I have been a member but have not yet used, how is it legal for them to deactivate members accounts, and then claim what they do about the funds that these accounts contain are set to different rules and regulations because they belong to said deactivated accounts??! Also, as with most of these companies for DECADES, these deactivations and terribly unjust reserves are almost entirely arbitrary and in my case was after the biggest month of my professional career, though I would never judge a system on just one case out of millions out of personal bias.
Please write up something on this very informative and helpful site about this as it affects millions of families and businesses, and seems as potential damaging to the US economy as the Prescription Drug stronghold with almost none of the publicity.
sincerely,
R. Melendez