HIGH RISK
MERCHANT RESERVES – TOTAL ASSET
PROTECTION
When you start a business venture, there
is the risk that something might not go
entirely as planned. When something goes
wrong with the business plan of the
merchant then, the acquiring banks and
the Merchant Account Providers will also
be affected negatively. Therefore, the
Acquiring Banks and Merchant Account
Providers maintain a non – interest –
bearing reserve fund so that they can
protect the issuing banks and themselves
from any financial catastrophes that are
suffered by the merchants. A few
merchants who are not aware of such a
reserve become worried when the bank
tells them to make a deposit or when
their processed funds are withheld. Such
a thing is particularly true when start
up businesses is not given their funds.
A few start-up businesses operate
completely on their last month’s
profits. This article explains the
importance of such a fund and how it is
advantageous to both the merchants and
the providers of merchant accounts.
This fund fundamentally works like the
security deposit made on for an
apartment. Suppose there is an accident
and something unfavourable occurs for
which the tenant is not able to pay,
then the money in the security deposit
will be used to pay for the damages. The
same thing is true in the world of
business also. For example, if the
provider of a merchant account is facing
a financial loss because of undesirable
acts around the merchant, then the
merchant reserve will cover the costs.
Such a reserve is not maintained because
of mistrust between the merchants and
the providers. They are only a form of
security for the acquiring bank and the
providers of merchant accounts. There
are several unfavourable circumstances
in the world of business such as
non-delivery exposure, natural
disasters, drop in sales, mismanagement,
unexpected expenses and excessive charge
backs. No body desires such things
should happen but the providers of the
merchant accounts have to be protected
from unfavourable processing
performances by the merchants which are
not in their control. Clauses relating
to reserves are found in all agreements
pertaining to merchant accounts.
The funds are collected in many
different ways. Mostly, the reserve fund
has to come at the time of the agreement
being signed between the merchant and
his provider. Some providers allow for a
rolling reserve in which a certain
amount will be put in to the reserve
fund by the merchant every month till it
reaches the predetermined sum. This
predetermined sum depends on many
variables such as line of business of
the company and previous credit history
of the merchant among others. Mostly
this is based on anticipated volume,
current volume, charge backs and return
percentages. The reserve amount can be
increased by the acquiring the bank or
the provider of merchant accounts based
on risk of the business.
Benefits from the reserves are not
pertained only to the banks and the
providers. The funds create a strong
bond between the providers and the
merchants, which avoid confusion when
the moment occurs.
Contact
one of our helpful account
representatives to assist you in the
setup of
a
high risk merchant account or
offshore merchant account for a
high risk merchant. |