Reserves and holdbacks, and when one is actually reasonable.
An acquirer that funds you before your customer's dispute window closes is carrying risk. A reserve is how that risk is managed. It is worth knowing the forms it takes, when it is justified, and what to ask before you accept one.
What this page settles.
Three questions, in the order most people ask them.
Why reserves exist
The timing is the whole explanation.
You are funded quickly — typically within a day or two of settlement. Your customer can dispute a transaction for considerably longer than that, often months.
In between sits a gap. If a merchant takes payment, is funded, and then fails to deliver and goes out of business, the customers still dispute. The money has to come from somewhere, and it comes from the acquirer.
So the acquirer is extending you credit on every transaction, whether or not anyone calls it that. A reserve is one of the tools for managing that exposure.
Understanding this changes how a reserve conversation feels. It is not a judgement on your honesty. It is an underwriter looking at delivery lead times, average ticket, trading history and category, and pricing the gap.
The three common shapes
Rolling reserve. A percentage of each settlement is held and released on a schedule — commonly a set percentage held for a set number of months, with the oldest tranche releasing as a new one is withheld. Once it is mature, money is going in and coming out at a similar rate, so the steady-state cost is the working capital tied up rather than the percentage itself.
Capped reserve. Funds are withheld until a fixed total is reached, then withholding stops. Painful at the start, invisible afterwards, and generally the easiest to plan around.
Upfront reserve. A lump sum deposited at the outset. Common for higher-risk accounts and for businesses taking payment well in advance of delivery.
There is also the thing that is not a reserve: an unplanned hold on funds while something is reviewed. That is a different event with different causes, and the key distinction is that a reserve is disclosed and has terms, while a freeze arrives without warning. If yours arrived without warning, the question to ask is which of the two you are actually in.
When one is reasonable
Several situations where an underwriter asking for a reserve is doing its job rather than being difficult:
You are new. No trading history means no evidence either way.
You take payment well before delivery. Event tickets, custom manufacture, travel, pre-orders, anything with a long lead time. The dispute exposure is real and obvious.
Large average tickets. A handful of disputes on four-figure transactions is a material amount of money.
Subscription or recurring billing. Historically a higher dispute category, largely from customers who forgot they signed up.
A category with elevated chargeback rates, which is most of what high risk actually means.
Your current dispute ratio is high. If you are near a monitoring programme threshold, expect a reserve to be part of the conversation.
In any of those, a proportionate reserve with clear terms is a reasonable price for being boarded at all — and frequently better than the alternative, which is not being boarded.
When it is a warning sign
It was not mentioned before you signed. A reserve should be disclosed in the agreement. Finding out when the first short settlement arrives is a failure of the sales process.
There are no release conditions. “We’ll review it” is not a term. A reserve with no defined exit is open-ended.
The size is not explained. You should be able to get a sentence on why that percentage and why that period.
It appeared suddenly on an established account with no change in your trading. That usually means something changed on their side — a risk policy, an acquirer, a portfolio review — and you are entitled to ask what.
Nobody can tell you the current balance. You should be able to find out what is held and when it releases.
What to ask before accepting one
Six questions, in writing:
- What type — rolling, capped or upfront?
- What percentage, and for how long?
- What is the maximum that will ever be held?
- What are the conditions for reduction or release? Specifically: how many clean months?
- When is it reviewed, and by whom?
- What happens to the balance if I close the account?
That last one matters more than it sounds. On closure, a reserve is typically held for a further period to cover disputes still in their window, and the length of that tail should not be a surprise.
If a reserve appears without notice
Ask what triggered it. A specific answer — a dispute spike, a category review, a change in your volume pattern — is a conversation. A vague one is a different problem.
Check your agreement for what it actually permits.
Work out the cash flow impact before you react. A 5% rolling reserve on your volume is a calculable number. Panic is less useful than arithmetic.
Fix whatever caused it, if something did. Reducing disputes is the most direct route to getting a reserve reduced.
Do not simply stop processing. Funds still held still have to work their way through the release schedule, and an abandoned account is a worse position than an active one being reviewed.
What we charge
Interchange + 0.50% + 10¢ in person, interchange + 0.75% + 25¢ keyed, with no contract and no monthly fee.
Underwriting is done by the acquirer rather than by us, and we will tell you up front if your business profile makes a reserve likely rather than letting it arrive as a surprise on your first settlement. If you have been offered terms elsewhere and want a view on whether they look standard, send them over.
While we are on the subject
Is a reserve the same as funds being frozen?
No. A reserve is a planned, disclosed arrangement with defined terms. A freeze is an unplanned hold while something is investigated. The first should be in your agreement; the second usually arrives without warning.
Do I earn interest on reserve funds?
Usually not. Read the agreement, because the terms vary and it is rarely volunteered.
Can a reserve be removed?
Often, after a period of clean trading. It is a reasonable thing to ask about at review, and the conditions for release should have been stated when it was imposed.
Does every merchant have one?
No. Most established low-risk merchants never see one. They are most common with new businesses, high-risk categories, large average tickets and long delivery lead times.