Rolling reserve is very common in the payment industry, so some of you may have already experienced them with your merchant acсounts. For those who just stated the business and are unfamiliar with a rolling reserve here are the following article.
It’s very rare, but occasionally reserves are held for some merchants with a higher risk profile.
When merchants activate their account, each website registered in their account goes through an underwriting process to ensure compliance with credit card association rules and to assess a risk profile.
The rolling reserve is a portion from every transaction that is held for 3-6 months, then settled to the merchant. This reserve account is held as security against an account being brought into a negative balance due to consumer returns, chargebacks and reversals and is standard practice in the payment processing industry.
As an example: from merchant with a monthly sales volume of $100,000 with a 10% rolling reserve for 6 months, the acquiring bank will retain $10,000 every month, which will then be released on the 6 month. Total released funds on the 6 month will amount to $60,000.
The general rule is that more risky the business, the higher the rolling reserve. Some factors which can influence your reserve level:
- Monthly chargeback and refund ratios.
- The large amount of average tickets on sales.
- The nature of selling services and products.
- The targeted countries of sales.
- High processing volume.
- Poor personal credit history.
What are negative affects of a rolling reserve on your business?
The rolling reserve will affect only your Visa and MasterCard transactions. As a merchant, so long as you can accommodate for that missing cash flow, then you will not have any problems, but in some cases giving 10% of your sales, could have negative concequences on your business. Especially if a large part of your business comes from credit card transactions.
What are positive affects of a rolling reserve on your business?
With rolling reserve it became possible to provide high risk businesses with merchant accounts . Nowadays, almost all businesses need to accept credit cards in order to stay competitive, even if they will need a rolling reserve attached to their account to make card acceptance possible. Rolling reserves are eventually released, and the merchant can go on processing normally.
Anyway, your only option as a merchant right now is to make sure you understand what the rolling reserve is, what percentage of your money the processor is planning to put on rolling reserve, and whether or not you can even stay in business without that cash flow.