What is a reserve?
A reserve is a temporary hold on a portion of a business’s funds for a predetermined period of time. Reserves are intended to cover any anticipated losses that may result from a business’s processing activity. Reserves are a common industry practice used by payment processors, and other financial institutions to ensure that businesses are able to cover disputes and refunds from their customers. Funds held in reserve will be paid out once the reserve term is complete (minus any customer refunds or disputes that may have been covered by the reserve).
Reserves do not impact a business’s ability to continue accepting payments.
What are the different types of reserves and how do they work?
There are two different types of reserves: fixed and rolling.
Fixed reserve – specified release date
With a fixed reserve, a set percentage of funds from each new transaction is held in reserve until a specified release date. On the release date, the reserved funds are released to the account’s available balance and made available for the next payout.
The following example illustrates how fixed reserves may work: a US business has a 25% reserve and a fixed release date of August 30 with standard 2-business-day payout timing.
Day |
Transaction |
Aug 1 |
• Business sells product for $100. |
Aug 4 |
• Business sells product for $200. |
Aug 31 |
The full amount held in reserve ($20 + $40 = $60) is released and made available for payout |
Rolling reserves
With a rolling reserve, a set percentage of funds from each new transaction is held in reserve on a rolling basis (e.g., a 30-day rolling window). As individual transactions move beyond the time window, any reserved funds from those transactions will be released to the account’s available balance and made available for the next payout.
The following example illustrates how rolling reserves may work: a US business has a 25% reserve and a rolling release window of 30 days, with standard 2-business-day payout timing:
Day |
Transaction |
1 |
Business sells product for $100. Platform fees are $20. Of the remainder ($80), 75% ($60) is made available to be paid to the business two business days. The remaining 25% ($20) is held in reserve for 30 days before being released to the available account balance for payout. |
4 |
Business sells product for $200. Platform fees are $40. Of the remainder ($160), 75% ($120) is made available to be paid to the business two business days. The remaining 25% ($40) is held in reserve for 30 days before being released to the available account balance for payout |
31 |
$20 of the amount held in the reserve is released and made available for payout |
31 |
Business sells product for $300. Platform fees are $60. Of the remainder ($240), 75% ($180) is made available to be paid to the business two business days. The remaining 25% ($60) is held in reserve for 30 days before being released to the available account balance for payout |
34 |
$40 of the amount held in the reserve is released and made available for payout |
62 |
$60 of the amount held in the reserve is released and made available for payout |
Reserve + balance transfer
In addition to one of the above reserve plans (fixed or rolling) which only affect new transactions, you may also see a portion of your existing balance transferred into reserves.
The following example illustrates how this might work: a US business has a 25% fixed reserve and 25% balance transfer with a release window of 30 days, with standard 2-business-day payout timing:
Day |
Transaction |
1 |
Business has an available account balance of $100,000. 25% of the available account balance ($25,000) is held in reserve for 30 days. The remaining 75% ($75,000) is made available to be paid to the business two business days. |
1 |
Business sells product for $100. Platform fees are $20. Of the remainder ($80), 75% ($60) is made available to be paid to the business in two business days. The remaining 25% ($20) is held in reserve for 30 days before being released to the available account balance for payout |
4 |
Business sells product for $200. Platform fees are $40. Of the remainder ($160), 75% ($120) is made available to be paid to the business in two business days. The remaining 25% ($40) is held in reserve for 26 days before being released to the available account balance for payout |
31 |
The full amount held in the reserve ($25,000+ $20 + $40 = $25,060 ) is released and made available for payout |
Why are reserves necessary?
Your platform partners with Stripe for payments. As a payment processor, Stripe is responsible for the disputes and refunds that arise when businesses take payments from their customers but are unable to fulfill their orders. When disputes happen, the payment amount, along with any additional dispute fee levied by the card network, is usually deducted from a business’s account balance.
However, it is possible that the funds in the account might not be sufficient to cover any disputed amounts. To avoid such situations, Stripe places reserves to cover any expected future disputes in order to protect both the business and the customer.
For other common questions on reserves, please see the Frequently Asked Questions article below.