Rolling Reserve Accounts can be confusing for new merchants, but they can be commonplace for industries that present a greater risk of fraud and chargebacks. In this blog we cover what rolling reserves are, which merchants require them and why they are necessary.
WHAT IS A ROLLING RESERVE?
When you sign a Merchant Service Agreement (MSA) with a payment processor to begin accepting Visa or Mastercard payments, you’re likely to see a clause about a rolling reserve.
The rolling reserve is usually 5-10% of a merchant’s net sales.
This sum is retained in a non-interest-bearing account for a fixed period of time, usually 180 days. The importance of the 180 days is that once your customers receive their goods or services, they will have 180 days to enact a chargeback with their card issuer.
If a customer raises a chargeback within the 180-day timeframe your merchant account provider will issue the refund immediately to your customer while the chargeback is being investigated.
Rolling reserve accounts are different from reserve accounts.
Reserve accounts are usually set-up with a pre-agreed amount to reflect the risk level of the business.
Rolling reserves, on the other hand, are taken up-front for a pre-determined amount of time and consistently roll the small percentage taken from the merchant’s net sales.
WHICH MERCHANTS REQUIRE ROLLING RESERVES?
Payment processors typically ask for rolling reserves when working with merchants that fall into industries that are more likely to be faced with excessive chargebacks or instances of fraud.
Some of these industries include:
- Online Dating
- Health and Wellness
- Licensed Gambling
- Skilled Gaming
- Food Supplements
- Tobacco, Cigar Stores
- Membership-based businesses (e.g. health clubs, fitness centers, magazines, etc.)
- Computer Software
- Property Letting
However, it’s important to understand that this is not a definitive list and other circumstances, such as delivery timeframes, can also result in a merchant account provider requiring a rolling reserve for your merchant account.
WHY ARE ROLLING RESERVES NECESSARY?
For many industries, including those listed above, rolling reserves are a way to protect both you and your payment processor.
A rolling reserve ensures that you always have sufficient funds available in your merchant account to cover the costs of chargebacks. If your industry experiences higher volumes of chargebacks this is something which can be incredibly important.