We see many banks willing to provide merchants with approval conditional on a rolling reserve or hold back. This leads many merchants to ask us, "what is a rolling reserve?". A rolling reserve or a "holdback" is a risk management strategy that is meant to protect both the merchant and their providing banks. It allows banks to lower a merchant's risk profile for a merchant that might not otherwise qualify for an account. A rolling reserve gives a merchant's bank the right to withhold a percentage of a merchant's gross volume. This volume is reserved to provide coverage for the possibility of business related risks like fraud or chargebacks.
The "rolling" label describes how the reserve amount that the banks hold is calculated. For example, if you have a 90 day rolling reserve, the amount that is withheld is based upon the gross volume of business that you have done over the last 90 days. The amount that is with held is often somewhere between 5% to 10%. So how does this break down? Let's say that you collect $100.00 in transactions every day for 90 days and your account has a 5% rolling reserve. This means that you can withdraw $95.00 from your merchant account every day. At day 91, you can also withdrawal the remaining $5.00 from the first day's $100.00 that you weren't able to touch before.
Generally speaking, the riskier the business is, the higher percentage of volume the bank may withhold as a part of their rolling reserve. As a collection agency, you're already at a high risk of reserve due to the industry's large risk of chargebacks. However, there are other factors that may affect your reserve level:
Even if your account gets initially approved with a rolling reserve - you won't be stuck with it forever! Within three to six months, you can usually ask to have your account re-evaluated by the risk department. If your account is in good standing with low ratio of chargebacks, the bank often feels comfortable enough to lower or entirely remove the rolling reserve.
Many of the merchants who contact us have never created a collection agency before and have little idea of how to start accepting debit card payments online. We've created this guide to help inform you of the steps you'll face to get your agency up and running with online credit card payments!
Do you know what a chargeback is? Did you know that your merchant account has a limit of how many charge backs you can receive? It's important as a high risk merchant to keep an eye on how many chargebacks you receive and to know what to do when you receive one.
Credit and debit card processing fees may be complicated and difficult to understand, especially when so many are in small print. Because fees can affect your business so much, we think it's important that you understand the ins and outs of credit card processing fees.