Why Is There a Reserve on My PayPal Account?

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.
by Ronen Shnidman
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Published: September 12, 2021
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Why Is There a Reserve on My PayPal Account. Acrocharge

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.

What is a PayPal reserve?

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:

  • Rolling reserve: A percentage of each transaction you receive each day is held, and then released later on a scheduled basis. For example, your account has a 10 percent rolling reserve held for a 90-day rolling period. It means that PayPal will hold 10 percent of the funds you receive on day 1 and release it on day 91, then hold 10% of the funds you receive on day 2 until day 92, etc.
  • Minimum reserve: A specific minimum amount of balance is set aside in your PayPal account at all times. For example, your account has a minimum reserve of $1000. PayPal may hold $1000 in your account all at once, or hold a percentage of each day’s sales until the total reaches $1000.
  • Jumpstart reserve: An amount of funds that are held from your available balance immediately. For example, if PayPal decides to keep a $1000 jumpstart reserve and there is $2000 in the PayPal account balance, $1000 is moved to reserves straight away.

Why does PayPal place an account reserve?

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:

  • Payment processing history with PayPal and other providers
  • Your industry’s chargebacks and refund risk
  • If your account has a high level of customer claims and disputes
  • Your business and/or personal credit history
  • Whether you're processing pre-sale orders or not
  • If there are extended delivery timeframes

Should performance improve for these key variables, PayPal may reduce or eliminate reserve requirements when it comes up for regular review every 180 days. 

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:

  • 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 and try to keep complaint rates below 1 percent of your sales.
  • Avoid long refund times, which can lead to complaints from dissatisfied customers.

Further advice from Justt

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.

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PayPal Reserve FAQs

Does PayPal hold funds for sellers?

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.

How long does it take PayPal to release funds?

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.

Will PayPal use the money in my reserve if I receive a chargeback?

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.

What type of reserve will my account have?

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.

How often does PayPal review reserves?

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.

Can I prevent a PayPal reserve?

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.

Written by
Ronen Shnidman
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by PYMNTS.com
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