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What Is a Rolling Reserve?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJun 20232 min read

If you’re shopping around to find a payment processor, you might see that some offer rolling reserves. It’s important to understand the rolling reserve meaning before committing to any contract. So, what is a rolling reserve and what does it mean for your merchant account? Here’s what every business should know.

What is a rolling reserve?

A rolling reserve is a policy used by merchant account providers that acts as a safeguard against chargebacks. For example, the account provider might ask for 10% of the merchant’s monthly turnover to be set aside for a specific period. During that period, the reserve funds help cover the cost of chargebacks. Anything left over is returned to the merchant account when the holding, or reserve, period ends.

While rolling reserves are typically between 5% and 15% of transaction turnover, the specific terms of will depend on the level of risk. Some businesses are more likely to experience a high volume of chargebacks, such as those with lengthy delivery schedules or subscriptions.

Rolling reserve meaning for merchants

A rolling reserve benefits the bank or merchant account provider, with guaranteed liquidity to cover chargeback costs. However, it can have a negative impact on the merchant’s cash flow. This is because a percentage of sales are set aside in a separate account, unavailable until they’re released. This could be anywhere from six to eighteen months, depending on the account provider – and during this time, you won’t be able to use the income to pay for production, bills, or other typical business expenses.

How does a rolling reserve work?

To better understand how rolling reserves work, it helps to take a closer look at the payment process. When a customer makes a payment using his or her credit card, they have the option to file a chargeback up until a certain point. A chargeback is essentially a transaction dispute. Perhaps the customer doesn’t receive a shipment, or the goods contained are not what was described by the seller. Sometimes cards are used fraudulently, leading to a dispute.

No matter the reason, the merchant is held responsible for chargeback costs. It’s up to the merchant account provider to refund this money immediately. This is why a rolling reserve account is useful, providing quick and easy access to the money needed to pay for chargebacks.

Does your business need a rolling reserve merchant account?

Rolling reserves aren’t a requirement, so as you’re comparing payment processors you can opt for an account without one. However, your choices may be limited if your business carries a high risk of chargebacks. Here are just a few common reasons for rolling reserve merchant accounts:

High-risk industry
Historic high chargeback rates
New business with a lack of a history
Poor credit rating
Long delivery windows

Whether you choose a rolling reserve merchant account or not, be sure to look at the fine print of your contract carefully. This should show you exactly how the reserve account is calculated, including the percentage taken from transactions and holding times.

Rolling reserves aren’t always a bad thing, nor do they count as a fee. You’ll still receive the full amount from your transaction, but payments can be delayed. The primary concern is the impact on cash flow, a real problem for small or start-up businesses without large reserves to pay bills. Yet on the other hand, if you don’t have a rolling reserve and get hit with numerous chargeback fees, this also takes a toll on cash flow. It’s important to consider whether this is a safety net that could ultimately be beneficial.

Another way to avoid chargeback fees and rolling reserves is by choosing alternative payment methods to credit cards. GoCardless allows businesses to pull payments directly from customer bank accounts using direct debit. Costs are lower per transaction as a result - in fact GoCardless reduces the cost of taking payments by over 50% in comparison to credit cards, while reducing failure rates and improving cash flow. It’s worth offering alternatives to credit cards on your checkout page if you’re concerned about the toll of rolling reserves.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.