Understanding Rolling Reserves
Are you puzzled by the term “rolling reserves”? We’re here to demystify these concepts in a friendly and educational way to help you better manage your finances. At Merchant Advice Service, we aim to provide you with the knowledge you need to navigate the world of merchant accounts.
What Are Rolling Reserves?
Let’s start with the basics. Rolling reserves are funds set aside as a safeguard against potential chargebacks and disputes. It’s like a financial safety net to ensure your business can handle unexpected financial setbacks.
The Ins and Outs of Rolling Reserves
Diversify Payment Methods: Offer various payment options to your customers, including credit cards, digital wallets, and traditional cash payments.
Track Your Finances: Keep a close eye on your cash flow and understand the impact of rolling reserves on your business’s liquidity.
Communicate with Your Processor: Establish a transparent line of communication with your payment processor to understand and negotiate the terms of your rolling reserve.
Plan for the Unexpected: Ensure you have a financial cushion to cover any unexpected charges or disputes that may dip into your rolling reserve.
What is a Rolling Reserve?
Let’s delve deeper into the concept of a rolling reserve. We often get asked by merchants to define what a rolling reserve is. As with most industry terminology, this topic can understandably cause confusion for 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.
Rolling Reserve Calculations
Accounts with rolling reserves will be assessed on a case-by-case basis. The reserve itself tends to be between 5% and 10% of the merchant’s monthly turnover, with payouts from three to twelve months. Once the account is live and the agreed payout period has passed, future payments will be made on a monthly basis in arrears.
Common Misconceptions About Rolling Reserves
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 that 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, but rather a delay in payment, ensuring you receive the transaction payments after a delayed period.
We often get asked for ways around having a rolling reserve, so 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 that 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 that you cannot afford, but rather as protection, ensuring you receive payouts for goods or services that have been completed formally with no issues along the way.
How to Reduce Your Rolling Reserve
Reducing your rolling reserve can be a goal for many businesses, especially those in the early stages of operation when cash flow is critical. Fortunately, this is often negotiable over time, provided the acquiring bank can observe a smooth and steady running of the account. As your business builds a solid track record of responsible financial management and low chargeback rates, your payment processor may be more willing to adjust the rolling reserve percentage and payout duration in your favour. It’s essential to maintain open communication with your processor and demonstrate that you’re a reliable and low-risk merchant.
It’s important to note that while reducing your rolling reserve can be a financial relief, rolling reserves offer benefits for both businesses and banks. They act as a safety net to prevent chargebacks and financial issues, ensuring stability in the payment processing system. So, finding the right balance that suits your business’s financial needs while also addressing the concerns of your payment processor can be a win-win scenario for everyone involved.
How MAS Can Help
Merchant Advice Service (MAS) can assist you in understanding and managing payments and rolling reserves. Our team of experts can guide you through the intricacies of merchant accounts and help you make informed decisions to benefit your business.
For more expert advice and tips, visit our blog page. We’re here to help you navigate the world of payments and reserves, ensuring a bright financial future for your business.
Conclusion
It’s clear that Rolling Reserves play a crucial role in the world of high risk merchants and merchant services. Rolling reserve accounts are not just a financial formality. They are a necessary tool for businesses to ensure smooth credit card payments and mitigate potential risks.. This especially true for those considered high risk.
Understanding how rolling reserves work is essential for any business owner. These reserves, often set for an amount of time like 120 days, act as a capped reserve to protect both the merchant and the acquiring bank. They are a part of the reserve requirement that helps maintain a stable financial environment.
It’s important to acknowledge the significance of rolling reserves in your payment service strategy. They are not just a safeguard but an opportunity to demonstrate financial responsibility and reliability.
Rolling reserves are a vital aspect of financial management for any business engaging in credit card transactions. They provide security and stability, ensuring that both merchants and payment processors are protected against unforeseen financial setbacks. With the right understanding and management, rolling reserves can be a valuable asset for your business’s long-term financial health.
