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 card payments subject to a reserve have a percentage 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.
Note: You may be able to process a certain amount of card payments each month before a reserve is held or there may be different reserve rates depending on the amount you’ve processed. To see your specific reserve terms, refer to your Reserve Dashboard or email we sent when we applied your reserve.
Reserves are intended to ensure that merchants are able to cover chargebacks from their buyers. 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 chargebacks, we may place a reserve on your account 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, 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.
You will receive notification by email and in your online Square Dashboard before the reserve goes into effect. Also, the Reserve Dashboard, available in the Balance section of your online Square Dashboard, will display your current, future, and past reserve terms.
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. Additionally, reserves only apply to card payments, not ACH bank transfers. Therefore, to take payments using Square that are not subject to reserves, consider letting your customers pay by ACH bank transfer.
The terms of your reserve include a duration period which determines how long we hold funds in reserve before releasing them back to your available balance. Once released to your available balance, the funds will be transferred per your transfer settings. You can view the amount and date of all upcoming releases on your Reserve Dashboard.
Reserve funds will also be released when you initiate a refund for a payment in which a reserve was applied. However, if we are unable to process the refund, the reserve amount will be returned to your reserve balance. See the Refund Overview for more information.
If and when the reserve is removed from your account or you receive a chargeback for which we are unable to debit your bank account, we may decide to release some or all reserve funds before the full duration period has passed.
We continuously monitor your account to determine if your reserve should be modified or released. However, given that our decisioning is affected by performance over time, we do not consider an account eligible for review for a minimum of six months from the time the reserve is placed. This review is done proactively by our team and does not need to be requested. We may reach out to you to collect additional information to complete the review. We will always notify you of any changes.
When conducting account reviews to determine if a reserve is necessary, we will review the following factors:
Prepayment for goods or services. Consider taking fewer payments in advance and more upon delivering goods or services. When you must take a payment in advance, take it as close to the delivery date as possible.
Chargeback rates for your account. Keep chargebacks to your account to a minimum and keep adequate funds within your linked account available to cover chargebacks when they do occur.
Sale documentation. Have strong documentation in place to win a potential chargeback. Provide buyers with clear documentation of what they will receive for their payment and have them sign a contract if applicable. Make sure you have a clear refund and cancellation policy in place.
Processing activity. Process payments consistently with Square and try to avoid taking irregular payments.