Merchant Account Holds and Freezes: Why Processors Hold Funds and How Long It Can Last

Merchant account holds can immediately disrupt your cash flow and make funding your day-to-day operations difficult. Even when the hold is only for a single transaction, the documentation, reviews, and process can be onerous and inconvenient. 

When you are notified about a merchant credit hold for review, it pays to be proactive. Respond to any documentation requests, so you can resolve the issue as quickly as possible. Over the long run, preventative measures can help you avoid potential account holds in the future. 

To learn more about what to expect when your merchant account funds are on hold, read on.

TL;DR

• Merchant account holds and freezes involve temporary delays in accessing your funds. Basically, settlement is paused because of the extra risk involved.
• These holds are typically placed by the merchant account provider, although the acquirer may require one in certain situations.
• Transaction-level holds focus on just the transaction in question. 
• Account-level holds involve the entire account. Often, these holds are for surges in transaction volume, new accounts, and similar factors.
• Rolling reserves are structurally different from holds. They are a day-to-day requirement that is used to offset risks, such as excessive chargebacks or refunds.
• While transaction-level holds are often resolved in just a few hours or days, account-level holds can take weeks to resolve. Edge cases can remain on hold for up to 180 days.
• When an account is terminated, some funds remain on hold for 90 to 180 days in case any chargebacks or refunds need to occur.
• During the review process, the account’s underwriting will be double-checked. The hold will be classified as a transaction hold or an account-wide hold. Additionally, merchants will often need to provide specific documentation on request.
• In response, merchants should stay calm, prepare their documentation, and avoid making any sudden changes.

Why Do Merchant Account Holds Occur?

Merchant account holds are typically placed by your merchant account provider, although the acquirer can require a hold if the transaction or account meets a specific risk threshold. 

If any step in this process encounters issues, you may be notified that there is a merchant credit hold for review. This basically means the settlement process is paused while extra security checks occur.

While we’ll explain what rolling reserves are later, the reason why merchant account holds happen is different. Rolling reserves automatically occur as a part of your account’s day-to-day operations. With account holds, something happens to trigger the hold. For instance, a chargeback, potential fraud, or other types of risks may cause a delay before the funds can settle.

Common Types of Merchant Account Holds and What They Mean

You may experience a merchant account holding funds for multiple purposes. For example, you can have broad, account-level holds or temporary holds on a transaction. Account-level holds are more likely to occur if your account is new or experienced a sudden spike in volume. 

Meanwhile, temporary holds happen because of problems with specific transactions. For example, there may be an AVS mismatch, a chargeback, or a manual entry involved. 

You’ll also likely deal with rolling reserves. These are particularly common for subscription-based companies and high-risk businesses where chargebacks are the norm. In these scenarios, the merchant account provider needs to keep extra funds on hand to cover any chargebacks and refunds. A percentage of each transaction is held back for a set amount of time. Once that time period is over, the funds are returned to you. 

At the high end of the spectrum, the most serious action a provider can take is to freeze the account. Account freezes are one step short of terminating the account. They may occur due to extreme dispute patterns, suspected fraud, misrepresentation of the business, or other problems.

So, how long can a merchant hold funds? And how do different hold types vary? To get a better understanding, let’s look at some common kinds of holds.

Merchant Account Hold Type	What It Is	How Long It Lasts	What Merchants Can Do About It
Account Review Hold	An account review hold typically happens if there is some type of unusual behavior, such as a sudden spike in purchases or a higher rate of complaints.	While it can take longer, most cases resolve within 30 days or less. Many holds take less than a week to resolve.	If you receive a request from your account provider, respond right away. Provide proof of purchase and customer support logs. As needed, offer explanations for volume changes and other issues.
Chargeback or Dispute Hold	When your rate of disputes rises, funds are held to cover the expected chargeback cost.	Until the dispute is fully resolved, the funds will remain in holding. Often, cases resolve in 30 to 90 days.	Avoid chargebacks and disputes by updating your return policy, clarifying product descriptions, and implementing better fraud prevention processes.
Chargeback Reserve Hold	This amount is held for future chargebacks.	This hold may never completely go away. However, it may be periodically reviewed and reduced based on your account’s chargeback history.	Besides keeping your chargeback and refund rate low, you can potentially lower this reserve hold by asking the account provider to review it.
Funding Hold	Funding may be temporarily withheld as the account provider assesses the risk involved and the authenticity of your transactions. It is also used with unusually large transactions.	Often, this type of hold is used with new accounts. As your account ages and the risk level declines, your funding hold requirements may be reduced. Depending on the risk involved, the funding hold may last for 1 to 14 days.	You may need to show supplier invoices or a record of fulfillment. Clear policies and accurate shipping timelines can also help.
High-Risk Review	This is a targeted review because of a high-risk level. For example, sudden volume spikes and extended delivery windows.	Many factors can affect the review process, but it can often be completed in one week to one month.	Make sure your site’s pricing, shipping timelines, and other policies are in compliance. If you offer a subscription, be as explicit as possible.
Refund Hold	Refund holds are placed if you have a high number of refunds, refunds happening before funds settle, or your account may have a negative balance.	You’ll generally need to wait for the funds to settle before the hold can be released.	Prevent refunds by having clear policies and accurate product descriptions. Try to wait until after settlement is complete to process refunds.
Rolling Reserve Hold	Rolling reserves are put in place to cover potential disputes and refunds. A percentage of each transaction is held and then released on a rolling schedule.	It depends. You’ll generally see rolling reserves released on a 60-day to 180-day schedule.	Reducing fraud, speeding up your fulfillment, and avoiding disputes can decrease your reserve requirements. Often, you can also negotiate a lower rolling reserve if you have a strong account history.
Settlement Hold	This type of hold can occur with individual batches if something seems unusual or risky.	While it can vary, this hold often lasts just one to seven days.	Settle your batches each day, avoid manual entries, and provide documentation when asked.
Termination Hold	After you terminate your account, this hold is used to make sure all refunds, chargebacks, and other costs are settled before you are given the remaining funds.	In most cases, this hold lasts between 90 and 180 days.	Organize your records and follow the provider’s dispute resolution process.
Underwriting-Related Hold	Know Your Customer (KYC) requirements, verification issues, owner verification problems, and similar documentation errors can lead to account holds.	While these can be resolved in less than a month, it all depends on how quickly the required documentation is submitted.	When asked, provide the underwriting documentation as quickly as possible.

What Are the Most Common Triggers of Account Holds? 

Each account provider has different rules and limitations. While account holds may be triggered by different events depending on the provider, the following triggers are the most common causes of merchant account holds. Basically, any activity that could potentially increase the provider’s costs and risk level can lead to account holds.

Sudden Volume Spikes 

When there is an unexpected surge in the number of transactions, ticket size, or transaction size, it automatically triggers a fraud review. These spikes can occur due to theft and fraudulent transactions. If the provider lets the transaction go through, it could result in a chargeback or refund. Rather than bear this cost, the provider holds the transaction to verify its authenticity.

However, there are real-world instances where spikes can occur. For example, many seasonal products, like snow shovels, are purchased in larger-than-usual quantities at certain times of the year. Similarly, ticket size or transaction volume can increase if an influencer recommends a brand.

Higher Chargeback Rates

When a chargeback occurs, it can result in lost funds. If the dispute is decided in favor of the customer, the funds must be returned to the customer’s account. 

As your company’s chargeback rate increases, you are considered a higher risk. Your business may face reserve requirements or account holds so that the provider doesn’t lose money. 

While it isn’t always in your control, there are a few things you can do to prevent chargebacks from happening. Customers file chargebacks when the item isn’t received or isn’t as described. Similarly, subscription-related problems can increase the likelihood of chargebacks. By updating your policies and reducing chargeback rates, you can avoid this common cause.

Suspected Fraud 

Anytime fraudulent transactions occur, they result in disputes and financial losses. Because of this, a merchant credit hold for review will be placed as soon as signs of fraud appear. AVS mismatches, keyed-in transactions, and multiple high-value orders from the same customer are all common signs of fraud.

Underwriting and Compliance Concerns 

From KYC requirements to anti-money laundering rules, providers face many compliance requirements. You’ll need to prove your business ownership, EIN, identification, and address. Even after your company is approved, sudden changes to your business model and marketing claims could raise a red flag.

You can avoid this kind of hold by providing documentation as quickly as possible. Then, make sure your website is updated with shipping timelines, refund policies, and other important information. If you do make major changes to shipping timelines, business models, or other products, let your provider know in advance.

Your Account Is Under Review: What Happens Behind the Scenes

Your merchant account funds are being held for an indeterminate amount of time. Now, what? 

While you might not be able to see the operations happening behind the scenes, the provider is working through a few important steps to investigate the hold and get your account running again.

1. A red flag triggers the hold.
2. A quick review determines if this is a transaction-level hold or an account-level hold.
3. You may face reserve requirements or delayed payments if the provider believes those funds will be needed later on.
4. Underwriters will double-check the basics of your account for accuracy and compliance before the full investigation begins.
5. The provider requests documentation, such as emails, invoices, and shipping receipts.
6. Finally, the provider decides whether they will release the hold, limit your account, or escalate the situation.
7. Following the review, the provider will continue to monitor your account. In particular, they will be looking to see if the same red flag occurs again. 

There are many different ways the provider can respond at the end of the investigation. They could resume normal funding or delay funding temporarily. If a higher risk is involved, the provider may increase your rolling reserve or chargeback reserve requirement. Additionally, transaction limits may be used to cap the number, size, and type of transactions. 
If none of these options works, the merchant account provider may decide to freeze or terminate your account. However, this type of response is rare and is reserved for only the most serious cases.

How Long Can a Merchant Hold Funds? 

The merchant account provider will typically clear transaction-level holds in just a few hours or days. For account-level holds, the funds may be released in a few days or weeks. In edge cases, a hold may last for up to 180 days.

It’s important to remember that holds continue after an account is terminated as well. The merchant account provider must be sure that refunds and chargebacks are wrapped up before they release the remaining funds. Post-termination holds typically last between 90 and 180 days.

How You Can Respond to Merchant Account Holds and Freezes

In the immediate aftermath of an account hold or freeze, it’s essential not to panic. The most important thing you can do is respond to the provider’s emails and avoid making any major changes to your account. Providers are averse to risk, so sudden changes should wait until after the hold has been removed. In the interim, you can continue fulfilling orders, communicating about delays, and running your business.

What Information Do You Need To Prepare?

It all depends on what the provider needs. Depending on the cause of the hold, they may ask for a few different kinds of information.

• KYC Documents: This includes documentation showing your business name, EIN, address, bank verification, and formation.
• Order Records: You’ll likely need to provide proof that orders were fulfilled, such as invoices, proof of delivery, and order lists.
• Your Website: The reviewer will check your website for policies, offerings, and other information.
• Chargeback Logs: Your chargeback logs will include a record of your chargebacks as well as the measures you are taking to reduce them.
• Refund Logs: These will include the date, the amount involved, and the refund reason.
• Customer Communication: You may need to show emails with the customer and support tickets.
• Policies: Most likely, you’ll need to provide shipping policies, terms of service, and return policies. Often, these policies are on your website.

Ways To Decrease the Likelihood of Future Account Holds

To avoid merchant account holds in the future, there are a few essential steps you can take.

• Talk to the Risk Department: Let your processor know before an unusually large transaction arrives.
• Don’t Mix Businesses: Never use one business account to process transactions for any other business. 
• Respond to Requests Quickly: If your provider requests documentation or more information, always respond to any requests right away.
• Select the Right Merchant Account Provider: To avoid potential holds, work with a merchant account provider that understands your industry.
• Prevent Chargebacks: Focus on reducing your chargeback and refund rate.
• Sell the Same Products: Stick to selling the products you agreed upon. If you plan on changing your products in the future, talk to your provider before making the switch.

How PayCompass Can Help Businesses Find the Right Merchant Account Setups

As a merchant, you have rights. Whether you are a high-risk merchant or a fast-growing business, you need reliable payment processing services. When dealing with merchant account holds on your funds, it helps to have an experienced payment team on your side. 

At PayCompass, you can get help determining the best merchant account setup for your company. From dispute management support to chargeback prevention, our team can help you adjust your company’s practices so that you are less likely to face unexpected, long-term freezes in the future. Through smarter upfront underwriting, you can reduce the risk of account holds.

Final Thoughts

While dealing with merchant account holds and freezes can be frustrating, there are steps you can take to successfully navigate the process. By improving the health of your account and responding to the provider’s requests right away, you can resolve the case and show that the transactions were legitimate. 

Holds and freezes are methods that payment processors use to ensure that transactions are valid. Although they are inconvenient, they serve a useful purpose. More importantly, this temporary inconvenience can be prevented by making proactive changes.
If you are dealing with a merchant account hold for review, we can help. Reach out to PayCompass today to get a professional evaluation and support.