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What is a Rolling Reserve?

Learn the ins and outs of a rolling reserve.

Collections Rolling Reserve

What is a rolling reserve?

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.

What Influences my Reserve Percent?

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:

  • Monthly chargeback and refund ratios.
  • The amount on average ticket sales.
  • High processing volume.
  • Poor personal credit history.

How Long Will I Have a Rolling Reserve?

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.

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