Understanding Merchant Account Holds, Freezes, and Terminations
Merchant account holds and freezes are seldomly discussed in the credit card processing world; however, they are essential topics to understand as a merchant. Most of the time, merchants don’t find out what a merchant account freeze, hold, or termination is until they find themselves dealing with them first-hand.
One of the most financially troubling things for a merchant to experience is a hold or freeze. This article will break down everything merchants need to know about merchant account freezes, holds, and terminations.
If your merchant account was recently frozen or held, you have come to the right place, and you will leave with an understanding of why it occurred and what you need to do next.
What Is a Merchant Account Hold?
A merchant account hold is when a credit card processor pauses settlements and instead holds all processed funds in security rather than depositing the money into your account. This is also known as a “funds hold.”
Merchant account holds differ from ACH delays and rolling reserves in that there is an internal reason at the acquirer or payment processor level for withholding your funds. There are many reasons your service provider could withhold your funds. Should your provider notice that you broke the terms of your contract, you could wait up to 180 days before receiving your funds.
Once your funds have been put on hold, you won’t be able to receive settlements from your account, and your funds will be held until your merchant account provider releases them to you.
Merchant Account Freezes
While a freeze and hold are similar, they do differ. A merchant account freeze is a worst-case scenario for a merchant. During a freeze, you will no longer be able to accept new credit/debit card transactions, and all of the income from recent transactions will not be deposited until the freeze is lifted.
When this happens, it can be a death knell for businesses depending on how established they are and their cash flow situation.
How to Avoid Merchant Account Holds and Freezes
Transparency and communication are absolutes when it comes to your merchant account. Always refer to the terms and conditions in your merchant processing agreement before setting up your merchant account to avoid a freeze.
Key Tips
- Speak with the risk department: Notify your processor of abnormally large transactions to prevent holds.
- Keep your processing partner updated: Inform them of significant changes to your business or transaction amounts.
- Never use your account for another business: Accepting payments for another business is prohibited and may lead to termination.
- Choose the right processor: Select a processor experienced in your industry.
- Only sell agreed-upon items: Stick to the items listed in your application to avoid surprises.
- Set expectations: Notify your processor of significant increases in transaction volume to renegotiate terms.
- Minimize chargebacks: Use tools like CB-ALERT to manage and reduce chargebacks.
Can Your Processor Legally Hold Your Money?
Your processor can legally hold your funds as you signed a contract that allows them to do so. Always review the terms and conditions in your merchant processing agreement before partnering with a payment processing provider.
What Causes Merchant Account Holds and Freezes?
Credit card processing companies can hold your funds for a variety of reasons. Common causes include:
- Breaking contract terms
- Suspicious activity or fraud
- Excessive chargebacks
Breaking Account Terms
Before opening a merchant account, you will need to sign a merchant processing agreement (MPA). This agreement outlines rules, limitations, and fees regarding ticket size and monthly volume capacities. Violating these terms can result in holds, freezes, or termination.
Excessive Chargebacks
Chargebacks are a major cause of merchant account terminations. Even if you win a chargeback, it still counts against your chargeback ratio. Tools like CB-ALERT, Verifi’s Order Insight, and BIN blacklisting can help prevent chargebacks.
Suspected Fraud
Suspicious behavior often results in the processor putting a hold on a merchant account. Legitimate transactions can sometimes appear fraudulent, such as sudden spikes in sales during seasonal periods.
What to Do If a Merchant Account Is Frozen
Unfortunately, once a processor freezes a merchant account, you must let the process run its course. Determine the cause of the freeze and plan for recovery. Speak with Corepay to explore solutions and regain access to processing.
Merchant Account Termination
An account termination is the end of the relationship with your processor. This typically happens when merchants violate the terms of service. When terminated, it’s best to find a new provider and learn from the experience.
What Corepay Can Do for You
Corepay can quickly review your business and help you start processing transactions again. We specialize in high-risk accounts, including CBD merchants, online dating, adult entertainment, and eCommerce.
With proactive measures and multiple accounts, Corepay helps merchants mitigate risks and improve approval ratios.
Speak With Us Today
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