Hi Nico,
When I started my eCommerce business over a year ago, I started with a bank that required a reserve. We stayed with that bank for six months before switching over to another bank with great service. Here’s my problem - that was well over six months ago and my original bank still hasn’t released my reserve! That’s a lot of money that’s not working for my company. I didn’t realize they were just going to keep it for so long. What do I do now? Is it just a loss?
--Feeling hijacked
Dear Hijacked,
This is a difficult issue that I have worked on with many of my clients. It’s common that a bank will expect a reserve, especially for a new business. We covered that topic in a video if you want more specifics.
As you experienced, the reserve typically continues to build as long as you’re with the bank. That can be hard when you’re in full growth mode and you could use the extra cash, but it covers the bank and you against bad deals. When you leave, however, it seems that money should finally be turned over to you. Only that never (or very rarely) happens right away. Most banks will hang on to those funds for at least three months and some for as long as six months or more. Why? Because customers may try to get their money back weeks or months after a sale and the bank may still be liable. The terms of the reserve are generally buried in that mountain of paperwork you signed when you set up the account. It’s pretty standard.
What’s not so standard, though, is for a bank to keep those funds for so long after the accounts closed. And yet, it happens. The bank may claim that it’s a risky account, or it will site an issue with a deal as a reason why it should still have the reserve. Meanwhile, you’ve moved on and are tackling a whole new set of challenges demanding your attention. For some, it becomes out of sight, out of mind, and they don’t check in regularly to move things along. The bank isn’t in a rush to hand out the funds, so there they sit long after they should have been turned over. For sure, don’t be that person.
You can stay on top of the bank checking in regularly to make sure your funds don’t fall through the cracks. You can also try to work with the bank to make a deal. We do this routinely for clients. One I worked with recently had a large reserve and a decent track record. We went back over the sales and looked at the chargeback history. We were able to show the real risk to the bank, which was much lower than the amount of money in the reserve. The bank agreed to give back a large portion of the reserve immediately with the rest coming no more than three months later.
In general, this is one of the things I urge merchants to be aware of when they’re choosing a bank. It’s not just about the price, you want a bank that has good customer service and will treat you fairly.
You want a bank that is open to having conversations with you and that will be responsive to your needs. Once you’ve been working with a bank and have shown that you’re a good customer and run your accounts well, you can talk to them about dropping the reserve or capping it.
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