Why Do Credit Card Processing Companies for Small Business Keep a Rolling Reserve?
When you sign up for a new merchant account you may notice withholding for a rolling reserve. But just what is a rolling reserve and why do credit card processing companies for small business require them?
What Is a Rolling Reserve?
Rolling reserves are protections put in place by credit card processing companies to buffer costs for possible chargebacks or other unforeseen charges. Rolling reserves may be put in place for businesses with little to no credit history so they can receive account access. Regardless of the reason, rolling reserves typically take a percentage of gross transactions and hold them in an account for a limited period of time, typically 1 to 6 months.
What Factors Lead to Rolling Reserves?
There are a number of reasons why credit card processing companies for small business require rolling reserves. Typically, businesses that have large average ticket amounts, high processing volumes, accounts that deal with online card transactions, or business owners with poor credit will require a rolling reserve.
Why Do Companies Require Them?
Why do credit card processing companies for small business require rolling reserves? When it comes down to it, the answer is all about protection. When you set up a merchant account you will most likely be required to provide a deposit or reserve. There are certain risks associated with any business, and new businesses typically come with the most risk. Your reserve helps to mitigate some of the cost associated with that risk.
Merchant accounts and payment processors need to guarantee that your sales are authentic. Until your business has established history, you need to provide financial guarantees to your service provider so they know you run a trustworthy business.
How Long Do They Last?
The good news about rolling reserves is that they don’t last forever. Credit card processing companies for small business don’t use reserves to punish businesses, they use them to establish good credit and trustworthiness. Each merchant account has its own specific terms laid out in the processing agreement you sign. Based on your past credit history, your business model, and other variables, your rolling reserve term of length should only be between 30 and 180 days.
Rolling reserves provide protection for you, your customers, and your merchant provider. They typically don’t amount to more than a few percentages of your gross sales and are only withheld for a short period of time. When you sign up for your payment processing, make sure you understand the terms associated with your rolling reserve.
We Can Help
At Allied Wallet, we attempt to keep our reserve requirements low and our terms short so you can use your profits to build your business. Contact us today to learn more about payment processing and rolling reserves.
