The last thing any business wants to deal with is a problem in their payment processing flow. From processing freezes to withheld funds and everything in between, scenarios like these can be quite troublesome and can have a devastating impact in the long and short run.

Does your business face frequent payment hold problems? If the answer is yes, continue reading this piece, as it will discuss how to avoid payment holds with your payment processor’s help. Doing so will help your company obtain smooth cash flow, allowing your business to flourish.

Understanding Payment Holds

A funding hold happens whenever a processor holds back the merchant’s processing volume and keeps it inside a separate protective account in case of fraud, refunds, or chargebacks. What’s more, individual transactions can also become subject to funding holds (especially if they are of incredibly high value or suspicious) or the business’ overall percentage.

The term used to describe the latter is usually a “reserve” or “reserve fund.” Whenever a processor continues to hold a particular percentage of the daily processing volume belonging to the merchant, the terms used to describe it are “reserve” or “reserve funds.” In case you are wondering, the processor holds this percentage as a guarantee.

After determining a prearranged period, the processor releases these funds according to the initial arrangement (the release happens on an ongoing basis.) Also, it is worth noting that this process takes place repeatedly, a major reason people call it “rolling reserve.”

Minimum reserves need to hold a particular sum for a specific period. Funds in minimum reserves do not release until that specific reserve fund is full.

Can a Processor Hold Money Legally?

Many people wonder whether processors have the authority to hold money legally, and the simple answer is yes. That said, there is a long answer too. Businesses that allow processors to hold their money give them the legal right for it by signing the contract.

However, you can negotiate some provisions out of your contract before signing it. Unfortunately, you cannot negotiate regarding the funding reserve/hold provisions from the processing contract. Withholding funds on some irregular activities is standard practice. Banks essentially front businesses the money on credit card charges.

They do this to make sure they can hold your money for more extended periods if they cannot recoup the cash because of fraud, refunds, or chargebacks. For those who are new, it is worth noting the language used in your particular contract. Consider becoming familiar with Square and Stripes and TSYS contracts to understand the language used by account providers. It is a great way to determine whether the agreement your signing works in your business’ favor.

Using Your Processor to Avoid Payment Holds 

As mentioned earlier, an undisturbed cash flow is essential for running a profitable company. Sudden interruptions to a business’s cash flow can be a massive nightmare and cause multiple problems. While there is no denying that credit card processors can freeze an individual’s cash flow, there are some things you can do to prevent it.

No matter which payment processor you have, the steps mentioned below will help you steer clear from terminations, freezes, avoid payment holds.

Choosing the Right Processor

Merchant agreements can be incredibly diverse and varied. However, you need to understand that there are two main types of agreements: third party agreements and direct agreements. Besides these options, some merchants may ask for a specialized direct agreement known as a “high-risk merchant account.” All of these options have their pros and cons, and you should consider the nature of your particular business before determining which one is right for you.

Setting Expectations the Right Way

You’d be surprised to learn that making a lot of money can be counter-intuitive for you, especially if you are not careful. Processors are always looking for stability and expect merchants to produce a consistent volume every month.

After applying for a merchant account (traditional), you will need to provide info regarding your expected transaction size and volume. The processors will utilize this data to look for suspicious activity.

Processors tend to get antsy when someone goes from processing four thousand Dollars per month consistently to triple or even double that within a month. It would be best to be clear about your card payment transactions’ volume and stick to it.

Know What You are Selling

Not representing your products, services, or business the right way is a surefire way to put your business at risk of account termination. Therefore, you should make sure to provide the right details on your application as your business could be part of a high-risk industry.

Once again, being honest about your business and what you are selling is essential because the processor gives you a merchant category code once you create a merchant account. If you plan to expand your operations and services, consider contacting your processor and telling them about the changes.

Reduce Chargeback and Frauds

In most cases, chargebacks are inevitable and can lead to freezes, holds, and termination. Processors see this as a sign that their merchants are not delivering according to their promise. Since the processor’s funds get withheld as soon as the chargeback happens, processors start getting antsy as they see an increase in the number of chargebacks.

Credit card fraud is also a common issue faced by merchants and consumers. This type of fraud is quite common for merchants and consumers and can happen in various ways. Most processors deem merchants with excessive chargebacks and credit card frauds as unacceptable risks and terminate their accounts. Therefore, it would be best to minimize fraud and chargebacks to avoid fund holds in the future.

Document Everything

Chargebacks can occur within three months after purchase. Documenting all of your transactions is a great way to protect your business from return requests, warranty claims, chargebacks, and other issues.

Consider keeping detailed records of the transactions even 6 to 9 months after they settle. It could include contracts, signed receipts, invoices, batch data, and other pertinent information. Store the documentation at an easily accessible place, but make sure that no one else gets their hands on it. If you do receive a chargeback and plan to fight it, make sure you send your document to the processor without wasting any time.

Final Thoughts

You will find plenty of other ways to avoid payment holds, but the ones discussed in this piece are arguably the best and will help your business flourish.

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