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.