A rolling reserve is a risk management approach applied by credit card processors, merchant account providers or acquiring banks to reduce the risk profile of high-risk merchant account holders. This strategy involves reserving a certain percentage (typically 5-10%) of total sales from the merchant for a specific period of time to act as a “buffer” for potential chargebacks.
Typically, your merchant account will be set up to have a rolling reserve for as long as you are in the game unless you decide to change your processor. For banks and processors, the goal is to assure there is a sound financial shield that helps to reduce loses.
Rolling reserve is usually required on merchant account holders at the beginning. While it will most likely affect purchases processed via Visa and MasterCard, you may need to create an RR account if other credit card companies, through some specific underwriting, explicitly require such a reserve.
Factors That Could Require a Rolling Reserve
Your Business may be considered high risk and if it has one or all of the following:
- * Large average ticket sizes
- * High processing volume
- * Excessive chargebacks
- * Poor credit history
- * Risky Business such as tobacco, vape, nutraceutical, the travel industry, subscription services etc.
Here’s a usual scenario, let’s say your travel agency has a website designed to meet the growing travel needs of people, and you currently have an existing travel merchant account. If your customers can book their trips to different destinations around the world, as well as enjoy fantastic accommodation facilities. They love the convenience, and you are making a good profit. However, your bank also understands that a travel business usually has a high possibility of fraud, chargebacks and other conflicts and disputes.
For example, a customer books flight weeks or even months ahead of the possible date of departure. As a result of unfortunate events such as natural calamities, personal emergencies or merely a change of plans, the customer may decide to withdraw the trip. Due to the protection policy in place, all the customer needs to do is file a dispute, stating that they are not convinced or satisfied.
In such cases , to protect themself against the risk of losing money, the bank imposes a rolling reserve on your merchant account. A percentage of your sales will be put on hold for certain days /months by your processor, and you may have no access to this money until the agreed timeframe.
For processors, the general thumb rule is that the riskier a business is, the higher the reserve. It’s crucial that they guarantee a certain amount of the total volume in order to protect against any risks of chargebacks or.
Can Rolling Reserve Affects Your Business and flow
A rolling reserve may affect your Business and flow, making it difficult for you to remain alive and competitive. It may also block you from using your profit and available funds for any purposes. This can severely harm the growth of your company.
The truth is, as a company looking to stay competitive, you can hardly survive without accepting credit card payments. So, before arriving the decision to set up a high-risk business, it is essential that you are prepared for the expenses.
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Feel free to contact us if you are looking for a high-risk merchant account at a very competitive rate.