Account terminations, processing freezes and withheld funds are words that no merchant wants to hear. Although the terminology and underlying reasons may vary from processor to processor, the end result is the same — you’re not getting the money you were expecting from that sale.
That’s actually the best-case scenario.
Depending on the type of “hold,” your merchant account might not be able to accept any new payments in the future — until the issue is resolved. For small to medium enterprises, that can mean the death of your business. This is especially true for e-merchants who rely almost exclusively on card-based sales.
What do these different types of account holds mean? And why do they exist?
What Are Account Holds and How Do They Work?
Processing freezes, terminations and withheld funds are often used interchangeably to describe temporary (or permanent) delays in payments. Each one describes a slightly different type of “hiccup.” To resolve these delays, it’s important that you understand what they are, how they work and when they are applied.
Let’s take a look.
1. Withheld funds
Withheld funds (sometimes called a “hold”) typically occur for one of two reasons:
- Your payment processor suspects that a recent transaction is fraudulent, and it wants to pause that sale until it can take a closer look. This happens most often with big-ticket purchases or any time suspicious activity is detected within your payment environment. These types of holds are usually unannounced, one-off affairs.
- Your payment processor wants to hold onto a percentage of all incoming sales in case you get hit with chargebacks or refunds later. The money is waiting for you in a separate funding account, but it won’t be released until you’ve generated enough additional sales to create a new financial buffer. This type of hold (also known as a “rolling reserve”) is usually ongoing.
2. Processing freezes
A processing freeze is when your payment provider temporarily “freezes” your ability to accept new card-based transactions. Payment processors implement these when they detect suspicious activity within your account. However, processing freezes also can occur during scheduled periods throughout the year whenever your payment provider wants to analyze your account or user agreement.
Process freezes are almost always temporary. But if your payment environment has experienced a lot of fraud, you may be required to use a rolling reserve moving forward.
3. Account terminations
This type of hold is self-explanatory. With a termination, your processor cancels your merchant account, making it impossible to continue accepting new card-based sales.
Potential reasons for the termination can vary. In most cases, this measure is taken because the merchant has violated the terms of his or her agreement. Account terminations also are common among merchants that consistently mislead their customers with false advertising or inaccurate refund policies.
Account terminations are almost never reversible. And you’ll likely have to find a new payment processor — assuming one will accept you.
How to Avoid Account Holds As a Merchant
Now that you understand how these holds work, let’s take a look at how you can avoid them.
1. Avoiding withheld funds
If you’re in a rolling reserve program, there isn’t much you can change. With a clean enough track record, it’s sometimes possible to reduce (or even eliminate) the rolling reserve requirement.
You can also reduce the number of chargebacks by offering refunds or by designing a better return policy.
2. Avoiding processing freezes
The best way to reduce processing freezes is to eliminate fraud within your payment environment. This means choosing a PCI-compliant payment processor that adheres to the latest data security guidelines.
Better fraud protection also can help reduce the frequency of withheld funds.
3. Avoiding account terminations
This one is easy:
- Follow the rules and guidelines.
- Don’t mislead your customers.
- Don’t lie to your payment provider.
Have Additional Questions About Account Holds?
Believe it or not, there are some merchants who rarely, if ever, encounter payment processing delays. That’s because they’ve chosen a PCI-compliant provider that specializes in fraud protection and data security.
If you’d like to learn more about our approach to secure payment processing — and how we help our clients avoid account holds — schedule a free consultation with our merchant services team today.