The search for a high risk merchant account can be full of hurdles but with a dependable high risk merchant account provider these hurdles are easily jumped. One hurdle that is often times difficult to overcome and/or manage is the rolling reserve. What is a rolling reserve? How will it effect your high risk merchant account and your business? And should you accept a merchant account that requires a rolling reserve? What can you do to get rolling reserves removed?
What is a rolling reserve?
A rolling reserve, for all intensive purposes, is an escrow account where a percentage of your credit card sales are held for a specified period of time to help mitigate any risk to the acquiring bank. Generally, depending on a number of factors, such as industry, processing history, and merchant credit history a the rolling reserve is withheld as a percentage of sales volume. The amount held is between 5- 20% for a “rolling” period of up to 180 days in a non interest bearing account. The percentage held back is set by the acquiring bank’s underwriting guidelines based on their risk tolerance. So what does that mean? It means that if you sell $100,000/month a month that between $5,000 & $20,000 will be placed in a non interest bearing account for up to 6 months at which time the funds are released each month for the earliest month in the 6 month cycle. As an example the rolling reserve funds held through the end of July will be released in January.
What risk is the acquiring bank trying to mitigate with a rolling reserve?
In high risk merchant services acquiring banks can get left with a lot of liability due to chargebacks in the event they are unable to collect from a merchant. So the rolling reserve is put into play as a buffer in the case where a merchant has large volume of chargebacks they are not able to settle. Businesses such as international business, businesses that have been placed on the MATCH list, support services, recurring charges, subscriptions, or businesses that debatable moral implications (like the adult industry) are all subject to rolling reserves. The reserve account provides the acquiring bank with the liquidity to offset their risk exposure.
How will a rolling reserve effect your business?
Before jumping into a high risk merchant account with a rolling reserve there are many things that should be considered. A rolling reserve can have profound effects on a business whose margins are thin, are just getting started, or which is in a very competitive market. There are 3 main effects that the reserve will have on your business are mostly cash flow related.
The first problem is obviously cash flow. Since the money is just sitting in a Non Interest bearing account it is not actively available to invest in your business. Ensuring that your business has enough Net profit (after the reserve) to pay for expenses can be tricky especially if it is a new business or one with low profit margins.
Choked cash flow could also affect your competitive edge. In order to remain competitive with both pricing and advertising requires cash flow. If your high risk merchant account requires a rolling reserve while your product pricing has to be highly competitive a rolling reserve may an impossible condition for your business to accept.
Finally, without sufficient cash flow and or savings your business may have trouble hitting its growth projections because the money will not be available for you to reinvest into your business. Make sure to calculate the effects of a rolling reserve on your growth projections and business plan before signing up for a high risk merchant account.
Should you accept a high risk merchant account with a rolling reserve?
Well, the answer to that question is not so easy! This is unique to every business model. Many business types simply cannot exist without a merchant account to accept credit card payments while others may be able to work on a cash, check, or ACH payment basis. Some businesses are simply in such a competitive market that they are unable to support the cash flow problems associated with a rolling reserve. However, if your business projections are able to sustain a rolling reserve and to achieve those projections your business needs to accept credit cards, yes, you will benefit from a rolling reserve. Doing so may actually provide a competitive edge against the competition whose business model may not be able to sustain one.
Can you get a rolling reserve requirement removed?
Yes. A rolling reserve requirement, often times, can be removed from an account after 6-12 months of good processing history. So, what constitutes a good processing history? Simple, for most acquiring banks, it is a consistent chargeback ratio under 1-2%, consistent monthly sales volume matching what the account was approved for, and a low refund ratio. Those 3 items will determine the risk level of your account and many acquiring banks or aggregate managers will remove the rolling reserve requirement if they all fall within their thresholds as long as those numbers are maintained.
At Bankcard Brokers we pride ourselves in working transparently and always in the best interest of our clients. If you are being told that your account requires a rolling reserve and you need a second opinion contact us and one of our certified payments professionals will be happy to consult you as to your options and work to find the most feasible high risk merchant account solution for your business. Whether you are looking for the most competitive and dependable high risk merchant account to accept credit cards, ACH payment processing, or any other merchant service Bankcard Brokers has the solution your business deserves.