Merchant Account Holds and Freezes: What You Should Know
Merchant Account Holding Funds
As a business owner, having a merchant account is essential—it enables you to process card payments efficiently and keep your cash flow steady. However, there may be times when your provider temporarily holds funds or even freezes your account, potentially impacting your business’s finances. Why does this happen, and what can you do about it? This guide explains merchant account holds and freezes, with helpful tips on prevention and solutions if they occur.
What Are Merchant Account Holds and Freezes?
A merchant account hold or freeze occurs when your payment provider restricts access to funds or temporarily suspends your ability to process card payments. Holds typically involve placing a portion of your sales revenue in an escrow account until the hold is lifted. A freeze, however, is more restrictive, preventing you from accepting any new card payments during the freeze period. Both actions are usually precautionary measures to investigate potential fraud or other issues. While holds may lead to temporary cash flow challenges, freezes can completely halt your card payment capabilities, making it vital to understand and avoid these situations.
Why Do Merchant Account Holds and Freezes Happen?
There are several reasons why your provider might implement a hold or freeze:
- High Volume of Chargebacks
Excessive chargebacks may indicate a problem with your product quality, customer service, or fraud prevention measures. Providers monitor chargeback rates closely as they increase business risk. - Unusual Transaction Patterns
Spikes in transaction volume or an unusually high-value sale can raise red flags. If your business usually processes smaller transactions but suddenly processes a very large payment, this could be seen as suspicious. - Suspected Fraud
If your provider suspects fraudulent activity, they may freeze your account while conducting an investigation. This is a protective measure for both you and your customers. - Late Payments
Falling behind on paying account fees could also trigger a hold or freeze. Most providers will lift the restriction once overdue fees are settled. - Violation of Terms of Service
Expanding your business into prohibited industries, processing more volume than allowed, or using your account for another business can breach the terms of service and lead to account restrictions. - Legal Requests
If law enforcement requests a freeze, your provider may comply even if not legally required to, particularly if an investigation is underway.
Steps to Take if Your Account Is On Hold or Frozen
If you experience a hold or freeze, take these steps:
- Contact Your Provider
Ask your provider if there’s any information you can supply to help resolve the matter. Documents like invoices, bank statements, or receipts can sometimes speed up the investigation. - Consider Alternative Payment Options
While you’re unable to process card payments, consider other options such as cash or bank transfers. - Review Financing Options
If the hold or freeze affects your cash flow, look into short-term business loans to bridge the gap until the situation is resolved.
What If Your Account Is Terminated?
If your provider decides to terminate your account, you may need to seek out a high-risk merchant provider. These providers generally charge higher fees and might require collateral, but they can help you keep your business running. Alternatively, you could consider operating as a cash-only business, although this may impact customer satisfaction.
Tips to Prevent Holds and Freezes
To minimise the risk of a hold or freeze, consider the following tips:
- Reduce Chargebacks
Ensure product descriptions are accurate, set clear return policies, and keep communication lines open to resolve issues before they escalate. - Enhance Fraud Protection
Use tools like address verification (AVS) and require card security codes (CVV) for every transaction. If a purchase seems unusually large or if there’s a mismatch between billing and shipping addresses, verify the transaction with the customer. - Be Transparent About Your Business
Give an accurate overview of your business during the application process. Inform your provider if you make significant changes, such as launching new product lines or expanding into different markets. - Maintain Open Communication
Contact your provider if you’re expecting a sudden spike in transactions, as proactive communication can prevent suspicious flags on your account.
Merchant account holds and freezes can be a challenge, but with the right approach and proactive communication, you can keep your business’s cash flow steady and minimise disruptions. Remember, preparation is key—by following these tips, you’re more likely to keep your merchant account running smoothly.
