Why Is There a Reserve on My PayPal Account?
When you start out as a business using PayPal, you might be under the impression that when a customer’s payment is processed you will get access to the entire sum of money. Then you get hit with some of the fine print. PayPal emails you that it’s instituting a reserve on your account.
What is a PayPal reserve?
PayPal reserves are funds held in your PayPal account to cover potential losses from payment reversals, such as chargebacks and claims filed by your buyers. The reserved amount is kept temporarily unavailable for use or withdrawal. The terms of your reserve will be included in the email you receive informing you that one has been implemented. To see your reserve balance, go to your Account Summary and view the “on hold” section under “PayPal balance.”
However, this reserve is not normally drawn down. When chargebacks or disputes are received, they are deducted from the merchant’s available balance and not the reserve. The reserve is used only if the merchant goes out of business or stops processing payments through PayPal.
PayPal has three possible types of reserves:
- Rolling reserve: A percentage of each transaction you receive each day is held, and then released later on a scheduled basis. For example, your account has a 10 percent rolling reserve held for a 90-day rolling period. It means that PayPal will hold 10 percent of the funds you receive on day 1 and release it on day 91, then hold 10% of the funds you receive on day 2 until day 92, etc.
- Minimum reserve: A specific minimum amount of balance is set aside in your PayPal account at all times. For example, your account has a minimum reserve of $1000. PayPal may hold $1000 in your account all at once, or hold a percentage of each day’s sales until the total reaches $1000.
- Jumpstart reserve: An amount of funds that are held from your available balance immediately. For example, if PayPal decides to keep a $1000 jumpstart reserve and there is $2000 in the PayPal account balance, $1000 is moved to reserves straight away.
Why does PayPal place an account reserve?
Well, why has a reserve requirement been placed on your PayPal account? According to PayPal, “Reserves are placed and evaluated on a case-by-case basis. A reserve may be placed if [PayPal] believes there’s a higher level of risk associated with your PayPal account.”
More concretely, PayPal lists the following elements influencing the implementation and size of the reserves:
- Payment processing history with PayPal and other providers
- Your industry’s chargebacks and refund risk
- If your account has a high level of customer claims and disputes
- Your business and/or personal credit history
- Whether you’re processing pre-sale orders or not
- If there are extended delivery timeframes
Should performance improve for these key variables, PayPal may reduce or eliminate reserve requirements when it comes up for regular review every 180 days.
Of course, it’s always better to nip the problem in the bud by preventing PayPal from instituting a reserve on your account in the first place. Here are four tips that will help you:
- Ship promptly and give your customers valid tracking information through PayPal, so they can keep tabs on their purchases and know when to expect delivery.
- Communicate early and often with your buyers and let them know about any changes, delays, or other important information.
- Monitor your buyer complaint rates and try to keep complaint rates below 1 percent of your sales.
- Avoid long refund times, which can lead to complaints from dissatisfied customers.
Further advice from AcroCharge
In addition, you should read our advice for avoiding PayPal chargeback scams. Not only do these scams cost you money but PayPal may factor them in when deciding if it should put a reserve requirement on your account.
For more information on how to handle problems related to chargebacks and disputes on PayPal or elsewhere, please contact us at AcroCharge.
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