Information on Merchant Accounts,
Ecommerce and Credit Card Processing

August 19th, 2005 by Jamie Estep

What is a reserve account?

Filed in: Merchant Accounts |

Hopefully you have never been presented with the situation of your business needing a reserve account for your credit card processing. Delta Airlines has just been threatened with a reserve account for their credit card processing that could cost their business over $750 million dollars in just 2 months.

A reserve account is basically a savings account that some merchants are required to have in the event of excessive chargebacks, a high risk business type, poor credit history, or some other factor that could jeopardize the businesses ability to pay their credit card processing bill.

There are 2 types of reserve accounts, rolling and fixed. A fixed reserve will require a business to maintain a certain monetary amount of money in the reserve account at all times. A rolling account will keep a certain percentage of the funds the businesses processes for a set period of time and then the funds will be released into the merchants bank account. Some rolling reserves span for only a few days while others are for months or even years.

A reserve account is designed to protect the processing bank in the event that the merchant can’t pay for the processing bill that they accumulated. If the merchant cant pay, then the processing company is stuck with the bill. This includes merchant account fees, chargebacks, merchandise returns, or any other fee the is any way connected to the accepting of credit cards.

Reasons for a reserve account:

  • High Risk Business Type
  • International Business
  • Poor Business or Business Owner Credit History
  • High Return or Chargeback Percentage
  • Unstable Processing History

What if you are faced with a reserve account?
A reserve account can be devastating for some businesses, especially in the case of a fixed reserve. You will usually find out if you have a problem when your batch deposits start appearing incorrect. Your provider may not even know, because it is the processing bank that implements a reserve on an account. Processing banks don’t take the time to inform you or your provider for several days after they have placed a reserve.

The first thing you should do if you are confronted with a reserve account is contact your provider. Do this immediately after you figure out something is wrong. Remain calm and courteous. If you are frustrated and yelling at people it is only going to make matters worse. Find out why you have the reserve, what type of reserve it is and ask how you can get it removed. Sometimes there is no way to get a reserve removed. This is unfortunate but is occasionally the case with a business. Other times the matter may be cleared up simple by providing some information to the processing bank. Sometimes your provider will offer to try and switch processing banks with you. This can be a smart move and it is possible to get the reserve lifted by switching banks. Make sure you don’t close your current account until your new one is opened. Also be prepared for your existing processor to hold your reserve for up to 6 months from the settlement of your last transactions. 6 months is the maximum amount of time for a chargeback to take place.

Many businesses get frustrated with a reserve account. Remember that nobody wants you to have a reserve either. There are simply regulations that everyone has to follow and your business may have just landed in the red zone. Your provider should do everything they can to help you get out of a reserve, but sometimes there is nothing that can be done. The best advice is to keep talking to your provider and the processing bank. The more you communicate with them, the better chance you have to get everything cleared up.

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