Depending on your credit card processor or the terms of your contract, holds placed on the credit card sales of your business can be delayed for up to 180 days. This can cause unnecessary disruptions to your business. This guide will discuss what merchant holds or freezes are, why they happen, what you can do, and how to prevent them in the future.
Your credit card processor has the right to place a hold or freeze on your merchant account if they feel that there is a risk involved. If you read your contract you will see the words “in our sole discretion.”
If your account is placed on hold, it will be for a specific sale. You will still be able to process credit card payments, however, the processor will retain the funds from specific credit card sales rather than depositing them in your account. A freeze placed on your account works differently than a hold. When a freeze is placed on your account you are unable to process credit card payments and recent transactions can be held.
Why are Funds Being Held?
There are a number of reasons why funds will be held by your credit card processor. The main reasons include the following:
- Fraud or suspicion of fraud
- Not abiding by your contract terms
When you apply for a merchant account, you must disclose a description of what goods and services you will be offering and what your average monthly processing volume and average ticket are. In addition to this, you will sign a merchant account agreement that details the rules, guidelines, and limitations regarding your account. Doing anything outside of these parameters can put your account on hold. This includes excessive chargebacks, using your account for other businesses, and accepting payment for prohibited goods and services.
When your merchant account is placed on hold for breaking your contract terms, you will not have access or be able to use your account while the investigation is going on. Once the investigation has been completed, the processing bank would then make a decision whether they will terminate your merchant account or reinstate it.
Automatic Termination of Account
Certain actions will almost always lead to your merchant account being terminated. This includes excessive chargebacks (whether it is ruled in your favor or not), deliberate misuse of the account, and credit card factoring(accepting payments for another business or person).
What Happens After the Investigation
After the investigation of a breach of contract, chargebacks, fraud, or any other reason your merchant account is placed on hold, as previously mentioned, your account will be reinstated or terminated. If your account is reinstated the funds will be deposited into your account after the processing bank feels there is no longer a risk involved.
If your account is terminated for fraud, you can be red-flagged and your information will be placed in the fraud detection system. In some cases, you could face fines or criminal charges.
Getting Funds Released
The best way that you can get your funds released to you is to:
- Be cooperative
- Understand and resolve the reasons your funds were being held
- Communicate with your processor
- Read through your contract and paperwork to make sure
- Avoid making threats
When you work with your card processor to determine the reason for the hold, it will be easier to get the funds released. This includes making sure that you get all paperwork that is requested, submitted to your provider immediately. The worst-case scenario would be waiting out the 180 days until the funds are released back to you.
How to Prevent Merchant Holds
The best way to prevent merchant account holds is to have an open line of communication with your card processor. This means if your goods and services change within your business you should notify your processor. If you anticipate a busy season coming and you will be processing more volume than stated on your application or your merchant account agreement, contact your processor immediately.
Know your limits
Give your processor a heads up if you are processing a large ticket item. If they are aware of changes coming through such as excessive volume or large ticket items, your account can be adjusted accordingly.
Be proactive and reduce your chargebacks. You may not have control over customers calling and disputing charges, however, you can take precautions by using fraud prevention or anti-fraud tools. Make sure that you are delivering goods and providing services as promised to your customers.
Use your account for your business
Make sure that you are only using your account for your business, or that it is used by the intended party that the account was issued for. It doesn’t matter if you own the other business or it’s a startup, if the entity is not named in the merchant account agreement you cannot accept payments for that business.
Disclose products and services
Disclose all the goods and services that you will be providing. If you need to make changes contact your processor in advance. Avoid accepting payments for services or goods not covered by your business type.
Be proactive against fraud
If you are an e-commerce merchant think about using an AVS (address verification service)check. The wrong zip code or address could send red flags to prevent potential fraud. For brick and mortar businesses check IDs and avoid manually keying in credit card information, or switch over to EMV acceptance.
When your merchant account is placed on hold, you want to resolve the issue immediately to have your funds released to you. Always keep documentation of transactions and other paperwork for at least 180 days, especially if the transaction is more than you normally process or outside of your designated limits.
It is also advised to monitor your merchant account and make sure that your receipts line up with your monthly statements and you are abiding by your merchant agreement and contract terms. Most importantly work with your processor and cooperate with their investigation.