As a high-risk business, you probably know that you will be subject to added scrutiny during the application process, as well as steeper per-transaction and auxiliary fees. After all, these are just the inevitable costs of setting up shop in certain industries. But did you know that you may also be required to set up a rolling reserve account? Take some time to learn what it is as well as why it may be a necessity before you can launch your company.

A word about high-risk businesses.

Just like you, payment processing companies are in business to make money. They get nervous when faced with the possibility that one of their clients may be more trouble than they are worth, financially speaking.

That’s because certain industries — such as firearms, cannabis, travel, adult entertainment, gaming, and others — usually operate under extra regulations and governmental scrutiny. What’s more, customers may be more prone to file a chargeback, which happens when they contact their credit card company to get a refund without consulting the merchant first. Even if the customer is in the wrong, you still need to devote time to fight the chargeback. Worse still, you may have to pay a penalty fee to your merchant provider.

Because of these possibilities, not every institution wants to work with businesses like yours. However, there is a lively market of reputably high-risk providers who will. One of the conditions they might impose on you to minimize their risk is that you open a rolling reserve account.

How do rolling reserve accounts work?

Your lender may mandate that you set up a non-interest bearing rolling reserve account. Every time you process a transaction, a percentage is siphoned off into this repository. You always have access to this account and can see your money accrue over time, either on your monthly statement or in real time in a secure portal. The account remains in place until the processor believes that the accrued amount is sufficient. Alternatively, they may let you close it if you can demonstrate that you have a positive processing history with few to no chargebacks. If, on the other hand, you have numerous chargebacks or do not pay your bill to the lender, they will use this account and withdraw from it until your debts are resolved.

Combatting the dreaded chargeback.

Fortunately, there are ways to protect your business from chargebacks. Methods that have proven to be effective include the following.

• Take action to make online and in-store payments secure.
• Be sure that your shipping and return policies are clear and prominently displayed.
• Be proactive by staying in touch with customers after their purchase and by working hard to resolve concerns and answer questions promptly.
• Describe your products with clear textual content and high-quality photos and videos.
• Keep your inventory updated to ensure that people get what they ordered accurately and quickly.
• Be transparent about shipping expectations. Update immediately if there will be any delays or other changes.
• If you offer free trials, they should actually never cost the customer money.
• Invest in chargeback protection services. When you do, the company will take on some or all of the liability from unauthorized transactions or fraudulent disputes. Without this extra layer of insurance, you would need to absorb all of these expenses. Your provider may also analyze transactions for possible fraud and may even fight the charges on your behalf. Because these services vary widely, it is important to read the fine print before signing any agreement.

When a rolling reserve ends.

Depending on the level of risk your business poses to the lender, the rolling reserve percentage may vary, and the reserve amount might change. For instance, the lender might require you to have a rolling reserve of 10% capped at two months of processing volume. Once you reach that amount, the lender will not take any additional funds. Should your account be closed by the processor or shut down by you, the bank can hold the funds in the reserve account for six months, which gives the customer time to file a chargeback. If this does not happen, your funds will be released.

How a rolling reserve affects your business.

Because the reserve amount is taken out during the transaction, your monthly budget will not be impacted. However, you need to consider the account’s effect on your cash flow.

Being required to open a reserve account may be perceived as negative, but it does have some benefits. Most importantly, it enables your high-risk business to get the merchant account you need to process customers’ payments. In addition, a rolling reserve is basically a forced savings account to which you never lose access. Once the merchant no longer requires you to have it, the cash is yours to spend in any way you want. That provides you with extra money to buy additional inventory, expand your business or upgrade your equipment. In other words, the silver lining to be found in a rolling reserve account actually offers protection against fraud while giving you a stash you can use later. That’s not so bad, is it?