What is the Rolling Reserve and why does money end up in it?
The Rolling Reserve is a financial mechanism used by banks and payment systems to protect against potential risks associated with chargebacks, fraud, or other unforeseen circumstances.
Under this mechanism, a certain percentage of incoming payments is temporarily held in a special reserve account. These funds are not available for immediate use and can be returned after a certain period, usually 90 to 180 days, provided no issues arise.
Money ends up in the Rolling Reserve for several reasons:
High-risk business: Banks and payment systems may consider your business risky if it is associated with an industry prone to frequent chargebacks or fraud. Such industries include online commerce, gaming, international money transfers, and other sectors with a high risk of financial loss.
New Business: If your company is new to working with a payment system or bank, they may want to take precautions and create a reserve to ensure the reliability of your business.
Frequent Chargebacks and Disputes: If your business has a history of frequent chargebacks or disputes with customers, the bank may increase the reserve percentage or extend the hold period.
How to Release Funds from the Rolling Reserve?
Funds can be released from the Rolling Reserve after the established hold period has expired, provided no disputes or chargebacks have arisen during this period. Here are a few steps to help you with this process:
Understanding the Reserve Terms:
Carefully review the terms of your agreement with the payment system or bank. Make sure you clearly understand the hold period and the conditions under which funds can be released.
Compliance and Risk Mitigation:
To reduce the risk of chargebacks and disputes, provide a high level of customer service and minimize product or service quality issues. The fewer disputes you have, the higher the likelihood of a quick refund.
Regular account monitoring:
Periodically check the status of your reserve account. This will allow you to track your receipts and understand when the hold period is approaching.
Contact your bank or payment system promptly:
Once the reserve period expires, contact your bank or payment system to request a refund. Prepare all necessary documents to ensure the refund process is as quick and smooth as possible.
Prepare for potential delays:
Sometimes the refund process can be delayed due to internal bank procedures or additional checks. Be prepared for such situations and be patient.
A rolling reserve is an important tool for minimizing financial risks that can impact the availability of funds for your business. To avoid problems, it's important to understand the terms of the hold and take steps to prevent disputes and chargebacks. Prompt communication with your bank or payment system and compliance with all contract terms will help you successfully recover your funds at the end of the reserve period.