When a customer makes a purchase with a credit card, there are a lot of steps behind the scenes to get their payment from the card to the merchant’s bank account.
One of the most important parts of owning a small business today is ensuring that process runs smoothly. Whether you’re an e-commerce seller or a brick-and-mortar shop owner, a disruption like an account hold could risk your cash flow and leave your customers dissatisfied.
Still, there are times when the credit card processing company you work with could hold your payments for longer than usual. Knowing why a hold occurs — and how to avoid it — can help you get back on track as quickly as possible.
Credit card processors help move payments from a cardholder to a merchant.
Every credit card transaction involves several parties. The transaction has to move from the merchant to the credit card network (Visa, Mastercard, Discover, or American Express) and the credit card issuing bank, then back through the network to a merchant services account and into the seller’s bank account.
The credit card processor facilitates those moves and ensures the merchant receives the payment at the end. PayPal, Stripe, or Square are a few processors you may know of.
Merchants typically pay fees for processing credit cards, which can vary depending on the processor they choose. Some might pay the interchange fees networks charge on each transaction, plus an added charge from their credit card processor, for example. Others pay a flat fee to the payment processor.
Read more:
At the end of the payment process, your business will receive the money (minus any fees) from the sale — often in a batch with other credit card transactions over a given period.
In a normal credit card transaction, the merchant will receive the funds from a transaction within a few days.
The exact amount of time it takes to receive funds from a credit card processor can vary, though. Some may offer speedier instant transfers to merchants (usually for an added fee), while others may take a few business days. In general, payment processors don’t hold these funds for very long before they’re passed along to the merchant — and you may be able to find more details in your business’s processing agreement.
Merchant account holds and freezes
In some cases, though, the processor can withhold some amount of the funds meant for the merchant or even put a processing freeze in place.
In the case of a merchant account hold, the credit card payment may still go through all the channels as a regular transaction, but the credit card processor can withhold the settled payment from the merchant at the end. When a processor puts a merchant in a processing freeze, it may not allow any credit card transactions at all.
During the hold or freeze, the processor usually begins an investigation into the issue, which can result in reopening the merchant account after it’s resolved or, depending on the issue, account termination.
These are a few reasons (though there are many more depending on the terms of your agreement with your processor) why a merchant’s account might be put on hold or frozen:
-
New sellers: The first time a merchant makes a sale, the processor may hold the funds for longer than usual.
-
Suspected fraud: If the payment processor suspects fraud, it could place a hold on a merchant’s account. This may look similar to suspicious activity on a credit card account — if a merchant suddenly has several large transactions in a short time period, for example, that can be a red flag for fraud.
-
Chargebacks: As a cardholder, you might dispute a charge with your credit card issuer in the case of fraud or if you never received an item you purchased. If a merchant has a significant number of these disputes, or chargebacks, made against them, the credit card processor could hold or freeze its funds while it investigates.
There’s no standard amount of time a processor may hold funds from a merchant. Often, it depends on the cause for holding funds, the merchant’s processing history, the terms of their merchant agreement, and more.
Generally, though, there is no set time limit for these holds. As a merchant, your processor can hold the funds until the issue (whether it’s caused by fraudulent activity, excessive chargebacks, or a combination of factors) is resolved.
The best way to resolve a hold quickly, according to payment processors, is to stay in contact. Make sure you read any emails or answer any messages from the processor regarding issues with your merchant account. You may need to provide documentation, answer questions about a transaction, or provide more information about your account.
The faster the processor can complete an investigation that’s keeping your funds on hold, the faster you can go back to business as usual.
Read more advice for small business owners:
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
Read the full article here
