Merchant Account Funding Delays - Explained
A merchant account funding delay is the result of the merchant service provider holding funds that would normally be deposited into the businesses bank account. Typically the delay is the result of a temporary hold of funds due to exceeding the soft limits on the account or to reduce the risk associated with a particular business.
Merchant account funding delay due to exceeding account soft limits
When a business signs up for a merchant account part of the application asks for estimates on the total dollar amount to be processed each month, the average sale amount and the high sale amount. Each of these figures represents a soft processing limit for the merchant account. It is very important to give accurate estimates for these figures when you set up the account. The reason, your processor reserves the right to hold funds that exceed any of the processing soft limits on the account.
If a funding delay is implemented, the reason is the result of increased risk associated with the account. When a merchant account application is reviewed for approval by the credit card processor the criteria for an approval involves the evaluation of the information provided on the application. The processing volume, average sale and high sale amounts provided on the application are weighted heavily when the application is approved. If these limits are exceeded the risk profile for the business changes and the processor will hold funds. For example lets say a business is approved for an account with a monthly processing volume of $30,000, an average sale amount of $100 and a high sale amount of $1000. If the business runs a single transaction for $3,000 in a given month the high sale amount has been exceeded and the processor may hold the entire $3,000. Now, this hold will not be permanent as the processor my require additional authorization from the customer in order to complete the deposit. Another example is if the $30,000 monthly processing limit is exceeded. Any amount above the limit is subject to a hold.
It is good practice to remain within the limits of the account. If, however, you need to exceed the soft limits on the account, it often works to preemptively call into your processor and explain the situation for exceeding your limits. Most processors will see this as good management and allow for an excess amount to be run.
Merchant account funding delay to reduce the risk of a particular business type
This type of merchant account funding delay is usually called a reserve or rolling reserve. A reserve will be placed on an account if the account is perceived to be high risk. Typically for these types of accounts the reserve will be disclosed up front and will be a condition for approval. The reserve amount will specified in an addendum to the merchant agreement. Each month a percentage of the total sales volume will be held until the reserve amount is fully funded. Once the reserve amount is fully funded all remaining funds will be deposited in the business bank account.