Securing an affordable and reliable high-risk merchant account often involves navigating through various challenges. A significant hurdle that many high-risk businesses face is the requirement to establish a reserve account. Understanding what a reserve account is, how it works, and its impact on your business is crucial in high-risk payment processing.
What Is a Reserve Account?
A reserve account is a non-interest-bearing bank account set up by the acquiring bank as part of a high-risk merchant account agreement. This account acts as a financial safeguard for the bank, holding a percentage of your credit card sales to mitigate risks like fraud and chargebacks. Typically, the reserve is held for about 180 days.
How Do Reserve Accounts Work?
There are two main types of reserve accounts: rolling reserves and capped reserves. A rolling reserve withholds a fixed percentage of your monthly sales (usually between 5-20%) for a period of up to 180 days. In contrast, a capped reserve retains a portion of your sales until a fixed dollar amount is reached.
Impact of Reserve Accounts on High-Risk Merchants
Reserve accounts are particularly common in high-risk industries due to the potential for chargebacks and fraud. Businesses in industries like international trade, recurring billing services, and those on the MATCH list are often required to maintain reserve accounts.
Cash Flow Considerations
One of the main effects of a reserve account is its impact on cash flow. Funds held in reserve are not immediately available for business use, which can be challenging for businesses with thin margins or those in competitive markets.
Accepting a High-Risk Merchant Account with a Reserve
Deciding whether to accept a high-risk merchant account with a reserve requirement depends on your business model. While some businesses may find it challenging to operate with a reserve, others might see it as a necessary step to accept credit card payments and gain a competitive edge.
Removing a Reserve Requirement
It’s possible to have a reserve requirement removed after demonstrating a consistent and clean processing history. Factors such as low chargeback ratios, stable sales volumes, and low refund ratios can influence a bank’s decision to lift the reserve requirement.
Choosing the Right High-Risk Merchant Service Provider
Working with an experienced and knowledgeable high-risk merchant service provider like Bankcard International Group (B.I.G.) is crucial. B.I.G. offers tailored solutions for high-risk businesses, helping them navigate the complexities of reserve accounts and secure the most favorable terms for their merchant accounts.
