Is Your Merchant Processor Holding Your Funds? Know Your Rights

For any business relying on credit card or debit card transactions, a reliable merchant processor is the lifeblood of their cash flow. These processors act as intermediaries between your business, the customer’s bank, and your own bank, ensuring that payments are processed and funds are deposited into your account. However, the relationship can become fraught when a processor unexpectedly holds your funds, impacting your ability to pay suppliers, employees, and manage your business effectively.

Fund holds, while sometimes necessary for legitimate reasons, can be devastating if not handled transparently and ethically. This article will explore the common reasons why merchant processors hold funds, outline your rights as a business owner, and provide guidance on what to do if you find yourself in this frustrating situation.

Common Reasons for merchant account Fund Holds

Merchant processors typically hold funds for a variety of reasons, ranging from perceived risk factors to compliance with regulations. Understanding these reasons is the first step in addressing the issue. Some of the most common include:

High-Risk Industry: Businesses operating in industries considered high-risk, such as travel agencies, adult entertainment, or subscription services, often face increased scrutiny and more frequent fund holds. This is due to the potential for higher chargeback rates and fraud.

High Chargeback Ratios: Chargebacks are refunds issued to customers when they dispute a transaction. A high chargeback ratio (typically exceeding 1% of total transactions) signals to the processor that your business may be engaging in questionable practices or struggling to resolve customer issues. Processors implement fund holds to mitigate potential losses.

Sudden Spike in Sales Volume: An unexpected surge in sales volume, especially if significantly higher than your historical average, can trigger a security review. Processors might flag this as potential fraudulent activity and hold funds until they can verify the legitimacy of the transactions.

New Business/New merchant account: Processors often exercise more caution with new businesses or newly established merchant accounts. They may implement rolling reserves or hold funds for a period to establish a transaction history and assess risk.

Suspicious Activity: Transactions flagged as suspicious, such as large transactions from unfamiliar locations, multiple transactions from the same card within a short timeframe, or transactions exceeding average ticket size, can trigger fund holds.

Terms of Service Violations: Failing to adhere to the merchant processing agreement’s terms of service, such as accepting payments for prohibited goods or services, misrepresenting your business, or engaging in deceptive practices, can result in fund holds and even account termination.

Account Reviews: Processors conduct periodic account reviews to ensure compliance with regulations and monitor risk. During these reviews, they may temporarily hold funds until the review is complete.

Underwriting Changes: Sometimes, the processor’s underwriting department determines that the risk profile of your business has changed and as a result implements reserves or fund holds. This can happen even to established businesses, particularly if there have been internal operational changes.

Your Rights as a Business Owner

While merchant processors have the right to manage risk and protect their interests, you also have rights as a business owner. Understanding these rights is crucial in navigating fund hold situations:

Transparency and Disclosure: You have the right to clear and transparent communication from your processor regarding the reasons for the fund hold. They should provide a detailed explanation, not just a generic statement.

Written Agreement: Your merchant processing agreement is a legally binding document. Ensure you thoroughly understand its terms, including clauses related to fund holds, reserves, and dispute resolution.

Right to Appeal: You have the right to appeal the fund hold if you believe it is unwarranted. Provide supporting documentation, such as invoices, shipping confirmations, and customer communication records, to demonstrate the legitimacy of your transactions.

Right to a Timely Resolution: Processors should conduct their investigations promptly and provide a timely resolution. Excessive delays without justification are unacceptable.

Right to Seek Legal Counsel: If you believe your processor is acting in bad faith or violating the terms of the agreement, you have the right to seek legal counsel and pursue legal action.

Portability of Data: You have the right to export your transaction data and take it with you if you are switching to a new merchant processor. This is crucial for maintaining business continuity.

What to Do When Your Funds Are Held

If your merchant processor is holding your funds, take the following steps:

Contact Your Processor Immediately: Initiate communication with your processor’s customer support department and request a detailed explanation for the fund hold. Document all communication, including the date, time, and the name of the representative you spoke with.

Review Your Merchant Agreement: Carefully review your merchant processing agreement for clauses related to fund holds, reserves, and dispute resolution. Understand your obligations and the processor’s rights.

Gather Supporting Documentation: Collect all relevant documentation, such as invoices, shipping confirmations, customer communication records, and any other evidence that supports the legitimacy of your transactions.

Submit a Formal Appeal: If you believe the fund hold is unwarranted, submit a formal appeal to your processor. Clearly articulate your reasons for disputing the hold and provide all supporting documentation.

Contact Industry Resources: If you are unable to resolve the issue directly with your processor, consider contacting industry resources, such as the Better Business Bureau or consumer protection agencies. You can also look into the services of a reputable payment gateway like https://authorize.net/ to see if they can help in the transition to a new provider.

Consider Legal Action: If all other avenues fail, consult with an attorney specializing in merchant processing disputes. They can assess your case and advise you on the best course of action.

FAQs

Q: How long can a merchant processor legally hold my funds?
- A: The length of time a processor can hold funds varies depending on the reason for the hold and the terms of your agreement. Rolling reserves are typically held for a specified period (e.g., 90 days), while temporary holds may be resolved within a few days or weeks.

Q: Can a processor hold my funds indefinitely?
- A: No, processors cannot hold funds indefinitely without justification. They must provide a reasonable explanation and work towards a timely resolution.

Q: What is a rolling reserve?
- A: A rolling reserve is a percentage of your sales that is held by the processor for a certain period of time to cover potential chargebacks or refunds.

Q: Can I switch merchant processors if my funds are being held?
- A: Switching processors while your funds are being held can be challenging, but it is possible. Ensure you understand the implications of terminating your agreement and the process for recovering your held funds.

Conclusion

Fund holds can severely disrupt your business operations. By understanding your rights and taking proactive steps to address the situation, you can protect your interests and minimize the impact on your cash flow. However, navigating the complexities of merchant processing agreements and disputes can be overwhelming.

If you’re struggling with your current merchant processor, or if you’re looking for a reliable and transparent payment solution, we encourage you to contact Payminate.com. Payminate.com is dedicated to providing businesses with fair and dependable merchant processing services. We understand the challenges businesses face and are committed to helping you find the best payment processing solutions for your specific needs. Contact Payminate.com today to learn how we can help you grow your business without the worry of unfair fund holds.