Underwriting & Risk
What Is a Rolling Reserve and When Do Processors Require One
If you've been told your merchant account requires a rolling reserve, it can feel like your own money is being withheld from you -- because, in a sense, it is. Here's what a rolling reserve actually does, why processors use them, and when they typically go away.
How a rolling reserve works
A rolling reserve holds back a set percentage of each batch of processed sales -- commonly in a range set at underwriting -- for a defined period, usually a matter of months, before releasing it to the merchant. It's not a fee; it's your own money, held as a buffer the processor can draw from if a chargeback or refund comes in after the sale has already been funded to you.
Why processors require them
Reserves are most common for businesses underwriting classifies as higher-risk: high average ticket sizes, delayed delivery of goods or services (deposits taken well before fulfillment), a new business with no processing history, or a history of elevated chargebacks. The reserve gives the processor a way to cover a chargeback without having to go back and collect from the merchant after the fact, which protects both sides from a cash-flow scramble if disputes come in.
- Reserves are typically reviewed periodically and can be reduced or removed once a business builds a track record of low chargebacks
- A new business with no processing history is more likely to see a reserve requirement than an established one with a clean track record
- Reserve terms should be spelled out clearly in your merchant agreement -- ask directly what percentage, what hold period, and under what conditions it's reviewed
What to ask before you sign
If a reserve is part of your underwriting terms, get specifics in writing: the exact percentage, how long funds are held before release, and what triggers a review or reduction. A reserve that's reasonable and clearly explained is a normal part of underwriting for certain business models -- what's worth pushing back on is a vague or open-ended reserve with no defined path to reduction over time.
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