What is a Merchant Account Reserve and Why Do I Have One?

October 15, 2021

A reserve account is simply a portion of funds which are set aside. These funds are in place to protect both the merchant and credit card processor in the event the merchant is exposed to unforeseen risk.  There are three main types of reserve accounts and are used depending on the nature of the business:

  • Up-front reserve
  • Accrual reserve
  • Rolling reserve

Up-front Reserve

An up-front reserve is usually applied to new merchants who have limited previous earning history. The reserve amount is typically based on the merchant’s expected monthly volume. The merchant is required at the beginning of the relationship with the processor to provide documents on the ex. Funding can be collected by holding back 100% of sales or a set percentage of sales until the reserve is fully funded.

Accrual Reserve

An accrual reserve is funded by taking a fixed percentage from the merchant’s daily sales until the required amount is reached or satisfied.

Rolling Reserve

A rolling reserve is often the most commonly used reserve model.  Under this model the processor will hold a fixed percentage of sales for a pre-determined time period. Account Reserves may seem unbearable, unnecessary, and could possibly deter you from accepting credit cards as a form of payment. However, please note that from the perspective of a credit card processor, each transaction processed for a merchant represents financial risk. In order for both the processor and merchant to be protected, a reserve account is the best option.

  • Most reserve accounts have a pre-determined period but a reserve account can remain for the entirety of the account.

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