When you start out as a business using PayPal, you might be under the impression that when a customer’s payment is processed you will get access to the entire sum of money. Then you get hit with some of the fine print. PayPal emails you that it’s instituting a reserve on your account.
PayPal reserves are funds held in your PayPal account to cover potential losses from payment reversals, such as chargebacks and claims filed by your buyers. The reserved amount is kept temporarily unavailable for use or withdrawal. The terms of your reserve will be included in the email you receive informing you that one has been implemented. To see your reserve balance, go to your Account Summary and view the "on hold" section under "PayPal balance."
However, this reserve is not normally drawn down. When chargebacks or disputes are received, they are deducted from the merchant’s available balance and not the reserve. The reserve is used only if the merchant goes out of business or stops processing payments through PayPal.
PayPal has three possible types of reserves:
Well, why has a reserve requirement been placed on your PayPal account? According to PayPal, “Reserves are placed and evaluated on a case-by-case basis. A reserve may be placed if [PayPal] believes there's a higher level of risk associated with your PayPal account.”
More concretely, PayPal lists the following elements influencing the implementation and size of the reserves:
Should performance improve for these key variables, PayPal may reduce or eliminate reserve requirements when it comes up for regular review every 180 days.Â
Of course, it’s always better to nip the problem in the bud by preventing PayPal from instituting a reserve on your account in the first place. Here are four tips that will help you:
In addition, you should read our advice for avoiding PayPal chargeback scams. Not only do these scams cost you money but PayPal may factor them in when deciding if it should put a reserve requirement on your account.
For more information on how to handle problems related to chargebacks and disputes on PayPal or elsewhere, please contact us at Justt.
PayPal can hold sellers’ funds if they are new to the platform, they’ve been inactive for a while, selling patterns have changed or are unusual, or multiple customers have filed for a dispute, chargeback, or refund.
It depends on the type of reserve on your account. For a rolling reserve, funds will be released after 90 days from when it was received. Minimum reserves are released within 180 days.
No, they’ll use your available balance to cover chargebacks. Funds in reserve are used when PayPal cannot collect past dues from claims, chargebacks, and debits.
Details on the type of reserve applied to your account are available when you log into your business account and view funds on hold. You’ll see how much money is being held in reserve and when the funds will be released.
PayPal typically reviews accounts every 180 days to determine whether adjustments on the type of reserve and amount are necessary. With positive changes, including claims reduction and steady business performance, reserves can be reduced or removed.
PayPal reserves aren’t always avoidable. And depending on your type of business, industry and transaction history, they may be a constant on your account.
