For high-risk businesses like yours, accepting customer payments means that you need to partner with a specific category of bank or lender willing to accept the extra liability your type of operation carries. 

Working with this type of provider means that you will incur higher fees, could be subject to additional minimum sales volume restrictions and could be required to undergo extra scrutiny during the application process. 

Additionally, the lender may demand that you open a rolling reserve account. Just what is it, and how could it affect your operations?

What is a rolling reserve account?

The reason your high-risk payment processor may stipulate that you open a rolling reserve is that it helps protect against chargebacks, which are customer-initiated funds reversals in which the shopper goes directly to their credit card company to get the money they spent on a purchase returned to them. 

Chargebacks not only cost the merchant both financially and in terms of time but can also be expensive for the payment processor. Should undue expenses arise due to a high number of chargebacks or should the store default on its payments, the rolling reserve is there to cushion the blow to the lender.

The concept of a rolling reserve is simple. A percentage of each transaction is set aside and placed into a non-interest-bearing account. 

Depending on the agreement you sign, the reserve amount may be capped when it reaches a certain benchmark or continues indefinitely. At any time, you have access to the rolling reserve account, both on your monthly merchant account statement or by logging into a portal. 

You can view how the funds are accruing in real time but cannot make a withdrawal.

How a rolling reserve can affect your business.

Because all Visa and Mastercard transactions are subject to the rolling reserve clause in your merchant agreement, your company could experience serious limitations due to this situation. 

In short, the more credit card transactions from these companies that you process, the greater will be the amount of funds to which you do not have access. As a result, your available cash flow can be seriously curtailed.

How badly will a rolling reserve harm my business?

There is no question that adhering to a rolling reserve requirement is not ideal. However, there are situations when you have no choice. There are a few factors contributing to how your business will fare with a rolling reserve.

Most important is your current cash flow. Take some time to calculate what your net profits from Visa and Mastercard are, and then determine if you will have enough remaining after the per-transaction percentage is removed and placed in the non-interest-bearing account. 

Don’t just assume that you will be able to handle the hit; small businesses in particular often operate on a very thin profit margin.

Another factor involves the types of products you sell and the nature of your competitors. If you are already struggling to match your rivals’ prices, you may not be able to raise the cost sufficiently to cover the rolling reserve cost without pricing yourself out of business.

Finally, drastic cuts in your working capital due to the rolling reserve withdrawals may make it impossible for you to expand and enhance your business. 

It may become difficult, for example, to afford a marketing campaign or the inventory you need. In order to obtain the high-risk payment processing you cannot do without and to continue to augment your company, it might be necessary to seek additional financial resources by speaking to your investors or applying for a small business loan.

Finding a credit card payment processor.

Unfortunately, there is no way to know in advance if the provider with whom you want to partner will require you to agree to a rolling reserve. You will only find this out when a decision is made regarding your application. 

However, you will then have the option to accept or decline the offer and can opt to keep shopping around until you find terms that are more agreeable.

Certain types of businesses and owners are more prone to need rolling reserves. Perhaps you have poor personal credit, sell large-ticket items, or have high processing volumes. Whatever the reasons, rolling reserves are sometimes unavoidable. 

The good news is that they will eventually be lifted, leaving you free to access the stored funds and begin running your company unencumbered by this restriction.