A frozen merchant account is one of the most devastating things that can happen to a business. It disrupts cash flow and makes it difficult to conduct business. The majority of processing banks insert terms in their contracts to limit their customers. These terms provide them with rights to hold back funds on various grounds, such as the type of business of the merchant or excessive chargebacks.
If your account is frozen, you won’t be able to access funds, and your funds will be held without deposit for a period of time. It also means that it will be impossible to accept income from any credit card transaction. Additionally, deposits from recently processed transactions will not be cleared for days, weeks, or months. Even so, before we go into detail, let’s take a look at what causes merchant account holds.
What Causes Merchant Account Holds?
There are several reasons why your processing bank can freeze your merchant account. The bank can freeze your merchant account if you; break the terms of your merchant agreement, excessive chargebacks, or suspected fraud. Here is a detailed insight into these reasons:
Suspicious Processing Behavior
Fraud is taken very seriously, and the majority of banks will freeze your merchant account immediately if they suspect suspicious behavior. Processors are always the second line of defense against any credit card fraud. Ideally, the main reason why holds are imposed is to protect cardholders and investigate potential fraud.
Although legitimate transactions can, sometimes, be considered suspicious to a processor, most holds are due to big jumps in processing volume and over a short period of time. The best way to avoid such setbacks is to inform your processing bank before starting your large seasonal swing.
Chargebacks are one of the biggest factors that can lead to merchant account holds or closure. Although there is a common misconception regarding chargeback that states that if you win, the processing bank does not count it against you, it isn’t usually the case. Whether you win or lose, a chargeback is always a chargeback, and too much of it will lead to the closure of your merchant account.
Statistics reveal that the best offense is to impose a good defense. You can use anti-fraud tools such as 3D secure, AVS, and end ensure you verify all CVVs or have more than one merchant processor for your business.
Breaking of Terms
If you want to open a merchant account, the first step should be signing a merchant service agreement. The agreement should be outlining the fees, rules, and limitations regarding the average ticket size of your account and the processing volume. If you break any of the terms listed in the agreement, your banks have the right to either terminate or hold your account.
If your bank holds your account, it will remain unusable until the investigation is complete. It will only make a ruling on whether to terminate or reinstate your account after investigating the breach.
What Doesn’t Cause Holds
The truth is; personal credit can cause holds and can greatly affect your chances of getting a merchant account. If you have a poor credit history, there are high chances that your processor will put restrictions on your account. If you want to avoid holds, you can either contact your processing bank’s risk department before running huge transactions or keep your account manager updated in case of any major changes in your business.
There is not much you can do if your account ends up getting frozen. You only need to cooperate with the process and let the process run its course. Ensure you put the above factors into consideration to help you keep your merchant account safe, and there is no doubt that your business will be free from the inconveniences of financial setbacks.
You can also follow our blog for more insight into why your merchant processor holds funds and what you can do to remain in business.