The account that a business relies on to make its transactions is usually known as a merchant account. When a credit card processor or bank suspects anything off with a merchant account, the bank or the processor may hold funds relating to that merchant account.
Though holding is usually done for the merchant’s protection, a lot of credit cards companies fail to warn businesses that funds to their merchant account are about to be held. This can often lead to problems, but there are certain things that merchants can do to avoid their accounts from being held.
Holding: what exactly is it?
A hold usually takes place when a credit card processor, bank or merchant service provider withholds some of the merchant’s money by placing it into a reserve fund - kind of like a security deposit. When a hold is placed on a businesses’ merchant account, the funds withheld are used as security against instances of fraud or chargebacks. However, the money being held still belongs to the customers and not you, the merchant.
Hold are usually initiated as a protective mechanism against fraudsters but they are not required of all accounts. Generally, high-risk merchant accounts or accounts with bad processing histories are more likely to require a hold compared to low-risk companies.
If a holder fails to work and the suspicious activity in the merchant account continues, that account may be frozen, which means that its processing ability will be shut down temporarily. Freezes often occur after holds as they allow the merchant to look into the anomaly and resolve it before things get out of control.
How to avoid funds from being held
Any account can be held, or even worse, frozen if it has an unreasonable number of chargebacks (over 1% of transactions). Your account may be held if the provider suspects some fraudulent transactions. So, to avoid being held, you should work on reducing your chargebacks. Keep good records and have them available!
As a merchant, you should always strive to keep up with your account activity. At any point in time, you should be able to tell the amount of money being held as well as the duration of the hold so that you can prepare yourself. Having this information at your fingertips at all times can prevent you from overdrawing funds that are not there.
If funds to your merchant account have been held, one of the first things that you should do is get in contact with your payment processor or the relationship manager in charge of your merchant account. Your relationship manager should be in a position to explain why hold on your account, or funds, has been initiated and he or she can help you release your account.
Agapay has dedicated people to help you through this process. Work with us today!