Square, the leading payment processing firm, has imposed ‘reserves’ on several accounts which have impacted businesses significantly. In order to protect your revenue streams, and ensure that you do not see any delays, there are proper steps you must take.
Business owners who use Square Inc. for processing payments at are now undergoing struggles due to financial reserves. In a article, Square described financial reserves as standard tools in the industry of payment processing. The tool is aimed at protecting buyers according to Square. However, in reality, it implies that several small-scale businesses and operators have to undergo major financial strains. It is because Square will withhold upwards of 30 percent in total revenue from businesses accounts who they place a reserve hold on.
Square Can Hold Your Money
Leading payment processors like Square wish to ensure that merchants go ahead with covering chargebacks or payment disputes in the condition wherein customers are not satisfied and are looking for a refund. It is especially true in highly volatile business environments, including the one brought forth by the global pandemic.
Square refers to its principle of withholding funds as ‘rolling reserves.’ This implies that a specific percentage of credit-based transactions are usually withheld from merchants. The respective amounts are later released to the merchants. In case this situation occurs to you while using Square, you will still b be able to see the funds in your accounts. However, you will not be able to access the funds until the reserve period ends. Therefore, it becomes difficult for businesses to rely on Square to process their payments.
How to Tell If Square has Placed a Reserve on your Account?
Square imposes reserves after taking into consideration a number of factors when they review merchant accounts.
For instance, when you accept payments in advance of delivering products and services, Square can put a reserve on your account. Square also focuses on merchants having a history of sporadic processing activities or payment disputes, particularly those involved in industries having higher chargeback rates. However, events like these are increasing during this era of decreased consumer spending.
Square imposes ‘Reserve Reports’ on different merchant accounts that have specific reserves on them. You will come across the specific notification in your dashboard’s balance section. The reports are available as comprehensive invoices detailing what funds Square is currently withholding and when you can access your funds. Some small-scale business owners have seen reserves of around 30 percent for up to 120 days. There are others who report experiencing withholdings of around 20 percent for up to 90 days.
The rates for withholdings by Square are not fixed. The rates are usually decided on a per-case basis. You can access the funds after the specified reserve period. However, the total amount will depend on the presence of payment disputes you have for the duration of the reserve.
This tends to put immense financial stress on small-scale businesses that might have experienced some decline already in terms of consumer spending. Square has put forth that their reserve policy will be responsible for covering chargebacks to the buyers. However, it is presenting new difficulties for merchants who are making use of the payment processing system and relying on regular cash flow. It is estimated that small-scale businesses will struggle significantly due to this new policy by Square.
What is the good news here? Square sends notifications to merchants through email before the reserves are put into effect. If you realize that your business might fall victim to have funds withheld by Square, you should keep an eye our for an email from Square related to reserves. You will have the chance to choose whether or not you wish to continue payment processing with Square.
Understand the Reserve Policy of Square
The legal agreement of Square has been provided on the official website. However, it will require in-depth research to obtain the most relevant information in the agreement. Article 13 of the Payment Terms of Square describes the reserve policy of the company. Business owners should have a look for themselves to understand it thoroughly.
As per the summary of the reserve policy of Square, the company has rights reserved for suspending or delaying payouts at it’s sole discretion -until it considers the same necessary. The agreement by Square is quite extreme. Therefore, it allows the firm to ensure debits or withdrawals from the bank account or reserve linked to the Square accounts without prior notice. The provision has not been described or listed in the standard marketing elements of the company.
Make Sure That Your Business is Not Restricted
Square does not permit specific illegal or high-end businesses to execute business with the firm or utilize its services. However, the simple signup process of Square does not filter out such businesses beforehand in most cases. The merchants are, therefore, allowed to process payments without any limitations until the fraud prevention team at Square determines that the business type of the merchant is restricted.
At this point, Square will usually freeze the merchant account. This would leave the merchant or the business owner in a fix as they await the final ruling of the customer service team of Square.
Predict Sudden Increases in Processing Volumes
While unexpected growth is a great surprise for most business owners, it can also indicate undertaking fraud prevention measures if it is taking place without any prior notice to Square. As per some of the most common complaints of Square, merchants remain at risk of their accounts getting frozen if the transaction volume tends to increase significantly without any warning.
Square is capable of interpreting a sudden rise in payments as a potential sign that the payments could be fraudulent or subject to specific disputes by customers -irrespective of whether or not they are legitimate transactions. In addition to this, an unexpected rise in transactions can also indicate that the merchants have started operating outside the existing business type.
Analyze Average Ticket Size
The average ticket size of your business might fluctuate independently of the respective processing volume. However, significant changes to the ticket size can affect the funding by Square of the total sales. Average ticket size is regarded as the specific dollar amount of the average sale of your business. Square seemingly calculates the average ticket size over time as your business keeps on establishing sales history.
If the average ticket size of your business increases significantly, you might be at risk of getting flagged by the fraud prevention team at Square.
Send Square Notification Before Processing Large-Volume Transactions
In some cases, you might know ahead of time that you will be processing a huge amount -quite excess to your typical high-ticket history. In such cases, it is recommended to reach out to Square and notify in advance about the large transaction.
The surges could be with respect to a single, large-sized event or some seasonal shift. However, it is always the best idea for Square to know about it in advance. When you inform Square, you are filtering your processing profile with the payment firm. At the same time, you are also helping the payment company understand the reason behind this large-size transaction. Generally, transactions that are above $500 remain at risk of getting flagged by Square -particularly if you rarely tend to charge anything above $100. If your business is witnessing high-dollar transactions suddenly, it is important to notify Square before you start accepting payments.
One of the major reasons for account freezing is the overall rise in chargebacks for a specific merchant. Square mostly maintains a reserve account to minimize fraud-related risks while paying for the associated costs in case of chargebacks.
Square can consider increasing the size of the reserve account or terminating your account altogether if it anticipates future chargebacks. There are several ways in which merchants can look forward to preventing chargebacks -disclosing applicable fees, making sure that the amount charged will match the price put forth amongst the customers, making sure that the address and name of the business will match the one displayed in front of the customers, and so more.
Compete with the Machine
Square has gone forward with canceling its limit for keyed-in processing. It is assumed that algorithmic risk elements are the main causes of merchant holdings. This implies that you are expected to consider what will cause the system of Square to flag your merchant account.
When you monitor different aspects like the overall ticket size, chargebacks, and sales volumes, you can look forward to avoiding the long-term, expensive hold by Square.