If you want to play in the high-risk space in merchant services, you’d better know your reserve terminology inside and out. And you should also understand what’s reasonable and what’s not when an ISO requests a merchant reserve.
Remember, an ISO is requesting to hold a reserve to minimize its financial risk. If they’re requesting a reserve, it should make sense given the financial risk they are exposing themselves to. That risk can vary based on the:
☑️ Business owner’s personal credit
☑️ Business type
☑️ The financial health of the business itself
☑️ Timeline between payment acceptance and service/product delivery
☑️ Processing history
A merchant must put up a lump sum of money to be held in reserve before they even start accepting payments. This is common for future delivery merchants with a long timeline between payment acceptance and delivery, but can also come into play for other scenarios.
A set percentage of each merchant deposit is withheld in reserve and then automatically released after a set amount of time.
A set percentage of each merchant deposit is withheld in reserve, but not automatically released. Instead, the balance accrues until a set limit is reached.
To be a true advocate for your merchant services clients, study these terms carefully so that you know exactly what an ISO is expecting from your merchant. And if something doesn’t make sense to you, don’t be afraid to ask your ISO to provide justification for their reserve requirement.
If your merchants are having funds set aside in a risk reserve, it’s important for them to track exactly what’s in that account. Sloppy accounting gets the better of many