The why and what of account reserves.

Oct 09 2018 | PayPal editorial staff

An account reserve is an amount of money that's put on hold in your PayPal account to help 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
  1. rolling reserve is a reserve where we hold a percentage of each transaction you receive each day, and then release it 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.
  2. minimum reserve is a specific minimum amount of money we hold in your reserve balance. We either take the minimum reserve as a percentage of money held until it reaches a certain amount, or a one-time amount.
    • For example, 5% of your daily transaction volume is held until a balance of $5,000 is reached, or a one-time amount of $5,000 is taken from the available balance and deposited in the reserve balance.
  3. jumpstart reserve is when we hold funds 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, we move $10K to reserves straight away.
We may also use a combination of reserve types on your account.
 
What type of reserve will my account have?
 You can view details of reserves on your account when you log into your PayPal Business account and view the balance ‘on hold’. You’ll be able to see how much money is in reserve, and when we plan to release your funds. 
 
How PayPal determines a reserve.
 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
You can access the PayPal User Agreement for a full list.

When will I get my money?
It depends on the type of reserve you have. Once a reserve is placed, you’ll receive a communication outlining the terms of your reserve, and you can also find the terms in your account. 
 
If you have a rolling reserve, we’ll release funds 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. We release funds at the time of the original payment. So, if a payment was received, and held, at 9am on Day 1, it will be released at 9am on Day 91. 
 
Minimum reserves are reviewed within every 180 days. PayPal proactively reviews reserves and based on improvements to your business performance, we may adjust or remove the reserves. 
 
How often PayPal evaluates reserves.
PayPal will periodically review your account within every 180 days to determine whether we need to adjust the reserve placement and amount. Reserves may be eligible for the reduction or removal with positive changes to key areas such as performance, industry, claims reduction, etc. 
 
How to help avoid having a reserve put on your 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 placed on your account by following seller best practices.

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.
The contents of this site are provided for informational purposes only. You should always obtain independent, professional accounting, financial, and legal advice before making any business decision.