What are reserves? Why is there a reserve on my PayPal account?
What are reserves?
An account reserve is an amount of money that is on hold in your PayPal account to cover potential financial risk such as payment reversals you may receive like chargebacks and claims. PayPal uses three types of reserves: rolling reserves, minimum reserves and jumpstart reserves.
- A Rolling reserve is a reserve where a percentage of each transaction you receive each day is held and then released later on a scheduled basis. This is the most common type of reserve.
- For example, your reserve could be set at 10% and held for a 90-day rolling period – meaning 10% of the money you receive on day 1 is held and then released on day 91, 10% of the money you receive on day 2 is held until day 92, etc.
- A minimum reserve is a specific minimum amount of money that’s held in your reserve balance. The minimum reserve is either taken as a percentage of money held until a certain amount has been reached, or a one-time amount.
- For example, 5% of your daily transaction volume is held until a balance of $5,000 is reached.
- A Jumpstart reserve is when funds are held from your available balance immediately.
- For example, if we make the determination to keep a $10K jumpstart reserve and there is $20K in the PayPal account balance, $10K is moved to reserves straight away.
Sometimes, we may also use a combination of a reserve types to on your account.
Why does PayPal use reserves?
Reserves are used to prevent transaction losses that may occur from payment reversals like chargebacks and claims filed by your buyers. Ordinarily, if you have a reserve on your account and receive a chargeback or dispute, we will deduct that amount from your available balance and not from any reserve balance. However, if a seller goes out of business or stops processing payments through PayPal, we will use any reserve to satisfy future payment reversals.
Reasons for placing reserves
Reserves are a common industry practice. They are used to minimize losses and to create a safer shopping experience. If you would go out of business or would be otherwise incapable of covering your financial obligations, we would still need to pay back the buyer. If a buyer contacts PayPal or their financial institution because they didn’t receive what they ordered, we’re responsible for making things right. A reserve can be placed on your account for a number of reasons and is set on a case-by-case basis. PayPal considers a list of factors to determine this including:
- Your processing history with PayPal and other providers
- Whether your industry has a higher likelihood of chargebacks or refunds
- Whether your account has an elevated number of customer claims and disputes
- Your business and/or personal credit history
- Whether you are selling products or services in advance (preselling orders)
- Your delivery time frames - whether there are extended delivery timeframes.
PayPal will periodically review the account to determine whether the reserve placement and amount needs to be adjusted. Reserves may be eligible for the reduction or removal with positive changes to key areas such as performance, industry, claims reduction, etc.
When will I get my money?
Once a reserve is placed, you will receive communications outlining the terms of your reserve. Your terms are also outlined in your account. When your money will be released depends on what type of reserve you have.
If you have a rolling reserve, the funds will be released after a certain period of time. For example, if you have a 90 day rolling reserve, funds from Day 1 sales will be available on Day 91.
For minimum reserve, reserves are reviewed every 90 days. PayPal proactively reviews reserves and based on improvements to your business performance it is possible that your reserves could be adjusted or removed.
How to prevent reserves from being placed on an account
Reserves may be a necessity throughout your relationship with PayPal. Preventing reserves isn’t always possible, and depending on your industry and your credit history, you might never be able to fully remove a reserve from your account.
However, you can reduce the likelihood of having a reserve and improve your customer service in the process by following Seller Best Practices – and that’s a win-win for everyone.
Seller Best Practices
Some best practices to follow are:
- 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 regularly and try to keep complaint rates below 1% of your sales
- Avoid long refund times, which can lead to complaints from unsatisfied customers.
A customer who receives prompt service, accurate order fulfillment, and speedy billing is a customer who will be less likely to file complaints or make returns in the future – and more likely to buy from you again.