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Reserves FAQ

What exactly is a “reserve”?

Reserves are a common industry practice used by payment processors and other financial institutions to ensure that merchants are able to cover chargebacks from their buyers. Square uses what’s known as a “rolling reserve,” in which a percentage of each credit card transaction is set aside and released on a rolling basis. These funds still belong to you and are only used if you are unable to cover a chargeback; if no chargebacks occur, you receive the full amount.

How does Square decide to apply a reserve?

We consider many factors before placing a reserve on your account, such as:

  • Prepayment for goods or services. If you are collecting payment in advance of delivering the purchased goods or services, we may place a reserve on your account until Square has a better understanding of your customer chargeback and refund rate.
  • Chargeback rates in your industry. Some businesses sell products or services that are more prone to chargebacks. This is especially true when a buyer may have a different expectation of the product or service than what is delivered, which is more common for home contracting and repair services, professional services, and travel and tourism services, as well as for custom-made products, such as furniture.
  • Chargeback rate for your account. If a significant number of your customers are disputing their purchases and/or if you have insufficient funds to support those disputes, we may place a reserve until your rate of disputed payments goes down.
  • Sporadic processing activity. Variations or inconsistency in transaction sizes or methods, or how many payments you’re taking within a given period, creates uncertainty around future cash flow, thus resulting in a reserve being placed on your account until a more consistent pattern is reestablished.
  • New to Square. If you don’t have a processing history with us, among additional risk factors, we may place a reserve on your account until we know more about how you process payments.

How will I know if my account has a reserve?

You will receive notification by email and in your Square Dashboard before the reserve goes into effect. Also, a Reserve Report will appear in the Balance section of your Square Dashboard. The terms of your reserve will be specified in the notification and in your Reserve Report.

Do I have a choice?

Yes, we notify you before the reserve goes into effect so you can choose whether to continue processing with us under these new conditions, before taking more payments.

When will I be able to access my reserve funds?

The terms of your reserve include two factors: a percentage and a duration period. The percentage represents the amount of your daily processing that will be set aside in your reserve balance. The duration is the time frame in which we set aside these funds in your reserve before releasing them. For example, if you have a 20% reserve rate with a 90-day duration, the 20% set aside in your reserve today will be released back to your available balance 91 days from now. There is no minimum requirement on your reserve balance.

I have been using Square for years and have had no problems covering chargebacks — why is a reserve being applied now?

Macroeconomic environmental shifts or changes in consumer behavior may cause your industry to become “riskier” than it was before, meaning the likelihood of chargebacks has increased for businesses like yours. In these cases, we may apply a reserve to your account to ensure you are able to cover any chargebacks.

How is Square using my reserve funds?

The reserve balance is there to help when there aren’t enough funds in your linked bank account or available Square balance to cover chargebacks. The reserve funds still belong to you and will be returned to you in full if not used to cover chargebacks. Square will not use your funds for any other reason.

When will my account be reviewed?

We’ll continue to monitor your account to determine if your reserve should be modified or released. We will always notify you of any changes.

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