How Long Can A Processor Hold Funds?

Today I wanted to be sure to run down various reasons as to why a processor would hold your funds. As a business owner it is crucial to understand this in order to manage cash flow effectively. The duration can vary depending on various factors, including the industry, risk level, chargebacks, and compliance requirements. Below you are going to find the most common reasons as to why money will get held:

1. Reserve: Some credit card processors require merchants to maintain a reserve account as a form of security against chargebacks or potential losses. A certain percentage of each transaction may be held in this account for a specified period. The length as to which reserves will be held falls directly in line with the refund period of the card brands. Typically this will extend out to 180 days.
2. Verification Process: simply put funds may be held while the processor attempts to verify the legitimacy and accuracy or recent transactions. Examples could be of a suspicious transaction, international transactions, or a transaction that is above the approved ticket size for the business.
3. ACH Rejects: if the processor is unable to collect on fees they are bound to put the account on 100% hold. These fees could be the monthly processing fees, chargeback fees, gateway fees, etc. The more times you bounce on repayment the more likely hood fees will be held for longer or you may run the risk of having an added reserve applied to the account to protect the bank from further losses.

Now that you know the most common reasons as to why funds are held let me do what I can to answer some questions that may be going on in your mind at this point:

1. Can a credit card processor hold funds indefinitely?

The short answer is no. There are specific guidelines and restrictions that determine the maximum duration for which funds can be held and as a "range" you can expect it held for 189 days.

2. Can a merchant dispute the duration for which funds are held?

Yes. Merchants can communicate with their credit card processors to address any concerns or disputes regarding fund holding durations. Open communication is key to resolving such issues.

3. How can a merchant minimize the duration for which funds are held? Merchants can take steps to reduce their risk level, maintain low chargeback ratios, and ensure compliance with regulations to minimize the duration for which funds are held.

4. Can a credit card processor release funds earlier than the specified duration?

In certain cases, credit card processors may release funds earlier than the specified duration, particularly if the merchant has a proven track record of low risk and minimal chargebacks.

5. What happens to the funds held by a credit card processor during the holding period?

The funds held by a credit card processor during the holding period are typically kept in a separate account, ensuring they are available when needed, such as for unforeseen disputes and chargebacks.

6. Can a merchant switch credit card processors to reduce fund holding durations?

Switching to a different merchant service company is not going to be the answer to get funds released. Again, the current company you are processing with will keep these funds for 180 days due to protecting themselves from disputes and chargebacks that may come through during that timeframe.

7. What documentation may be required to reduce fund holding durations?

Credit card processors may require additional documentation, such as financial statements, business licenses, invoices, credit card authorization forms or proof of delivery, to reduce fund holding durations.

8. How can merchants monitor the status of held funds?

Merchants can regularly communicate with their credit card processors and monitor their account statements to stay updated on the status of held funds.

9. What should merchants do if they believe funds are being held unfairly or excessively?

If a merchant believes that funds are being held unfairly or excessively, they should escalate the issue with the credit card processor’s customer support and seek legal advice if necessary.

In conclusion, as a business owner you should understand these factors, maintain low risk levels, and communicate effectively with your credit card processor to minimize fund holding durations and manage cash flow efficiently.

About Author

Currently Mark is owner of Legacy Payments and part owner of Deposyt where he increases overall company sales by developing relationships with vertical markets to bring in new merchant processing accounts.

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