Let’s talk payments and rolling reserve

What is rolling reserve?

We often get asked by merchants for the to define what a rolling reserve is. As with most industry terminology this topic can, understandably, cause confusion to business owners worldwide.

So what is the meaning of a rolling reserve? Some merchant account providers request a rolling reserve, which is a facility to counterbalance the risk of loss to the merchant and the acquiring bank in the event of high chargebacks. The reserve itself is a percentage of monthly transaction turnover, which can be anything up to 10%. This money is held for a set period of time by the account provider, and subsequently released accordingly.

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Rolling reserve calculations

Accounts withrolling reserveswill be assessed on a case by case basis, the reserve itself tends to be between 5% and 10% of the merchants monthly turnover, with pay outs from three to twelve months. Once the account is live and the agreed pay out period has passed, future payments will be made on a monthly basis in arrears.

Some start-up merchants prefer accounts with no rolling reserve as, in the first few months of trading at least, every penny counts. Rolling reserve merchant accounts tend to be used for high risk merchants working in industries with historic chargebacks.

Rolling reserve merchant accounts

There are some common misconceptions when it comes to payment processing with a rolling reserve, which merchants need to be made aware of.

Firstly and most importantly many businesses see a rolling reserve as a negative element which is factored in when choosing certain account providers. The tool should be seen as a safety net, for you the merchant, rather than a loss in turnover in the early months of opening your account. The rolling reserve itself isn’t a fee, more a delay in payment therefore you will receive the transaction payments after a delayed period.

We often get asked for ways around having a rolling reserve, it’s important to consider why you don’t want the protection in place for your business. If you are working in a high risk industry with large chargebacks and didn’t have a rolling reserve in place, you could receive funds which then need to be paid back (or deducted from your next settlement.) Having said that if you are using an account such as PayPal or Stripe and wish to find alternatives with lower rolling reserve amounts, then it might be worth shopping around. Newer businesses often use the above companies and stick with them as their companies grow, however with well-run accounts it may be possible to reduce your rolling reserve by switching account providers.

Remember, the account rolling reserve will not earn the provider any interest, and is there to protect them as much as it does you. It shouldn’t be seen as a fee which you cannot afford, more as protection and receiving pay-out on goods or services which have completed formally with no issues along the way.

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