Rolling Reserve is a mechanism used by payment systems and acquiring banks to protect businesses from financial risks associated with refunds and chargebacks. In this article, we will explore what Rolling Reserve is, how it works, and its benefits for businesses.
Rolling Reserve is a specific percentage of funds from a merchant's transactions that is temporarily held by the acquiring bank or payment system. These funds are kept as a reserve to cover potential refunds and chargebacks. The reserve is usually held for a predetermined period, after which it is gradually released to the merchant.
Percentage and holding period: The acquiring bank or payment system determines the percentage of funds to be held and the period for which they will be reserved. This percentage typically ranges from 5% to 15% of the total transaction amount.
Transaction processing: When a customer makes a purchase, a portion of the payment is reserved according to the predetermined percentage. The remaining amount is transferred to the merchant's account.
Release of funds: After the holding period ends (usually 30 to 180 days), the reserved funds are gradually released to the merchant. This process helps ensure that sufficient funds are available to cover potential refunds and chargebacks.
Risk management: Rolling Reserve helps businesses manage the risks associated with refunds and chargebacks by ensuring that funds are available to cover these costs.
Improved financial stability: By maintaining a reserve of funds, businesses can better manage their cash flow and ensure financial stability.
Enhanced trust: Using Rolling Reserve can enhance trust between merchants and acquiring banks or payment systems, as it demonstrates a proactive approach to managing financial risks.
Rolling Reserve is an effective mechanism for protecting businesses from financial risks associated with refunds and chargebacks. By understanding how it works and its benefits, businesses can better manage their cash flow and ensure financial stability. Implementing Rolling Reserve can help build trust with acquiring banks and payment systems, ultimately contributing to the overall success of the business.
We are a team of professionals dedicated to protecting your interests. Trust us and we will put your financial affairs in order.