If you open a shop on an online marketplace and make a sale, the platform may decide not to send you all of the money you’ve earned immediately. Instead, it might keep part of your revenue in a reserve account until it confirms that you’ve sent the product to the customer. Even then, the marketplace might keep your money in reserve if it thinks the customer is likely to ask you for a refund. Online marketplaces use payment account reserves to protect themselves, but they could be an unwelcome surprise if your business isn’t keeping funds in reserve to cover its expenses.
Protection From Chargebacks
If a merchant signs up for a platform, sells a product, and doesn’t deliver it that puts the platform at risk of a chargeback. The customer could also ask for a chargeback if the product doesn’t meet expectations, and that situation is also more likely to occur with a new seller. If the customer asks their bank for a chargeback and wins their case, the bank will reverse the transaction. The marketplace will then deduct the value of the sale from the merchant’s account. If that results in a negative balance, the marketplace will have to collect the unpaid balance from the merchant.
It’s easier for the marketplace to do that if it makes the merchant set aside some of their sales revenue in a payment account reserve. This is similar to an escrow account. The marketplace can then just use the money in the reserve account to cover the negative balance in the main account. That’s a lot easier than trying to collect money from the merchant, especially if the merchant is located outside of the United States.
As Shopify explains, a marketplace may require reserve accounts for merchant accounts that have high chargeback risks. The platform may automatically set up a reserve account in this situation. If you’re in this position, you may want to focus on customer satisfaction to reduce the likelihood of chargebacks. Once the platform is satisfied that the chargeback risk has decreased, it may stop placing part of your revenue in a reserve account.
Shipping Confirmation
An online marketplace might need to verify that a new merchant is actually shipping orders to customers. In the past, scammers signed up for online marketplaces and accepted orders, but they never actually shipped the orders to the customers. So the marketplace might set up a payment account reserve until it has confirmed that the shipments are on their way to the buyer’s house.
Etsy may remove a hold on a merchant’s funds if the merchant can prove that the product has been shipped to the customer. Otherwise, it might keep the hold in place for up to 45 days. If you’re in this situation, you need to make sure that the shipment includes tracking information that satisfies Etsy. One way to do this is to use Etsy’s Shipping Labels service. The shipping labels aren’t free, but the online marketplace also says that you’ll receive a discount from its shipping partners if you use the labeling service.
Amazon may place holds on a merchant’s funds if the product will take a long time to ship. If the merchant collects money from a sale immediately but the shipment doesn’t arrive for a few weeks, that adds risk for the marketplace. So picking a faster delivery method may also reduce the risk of the marketplace creating a payment account reserve.
New Merchants
Many marketplace platforms will set up reserve accounts when merchants sign up for their platforms. If a platform does this, the merchant just has to wait a while until the requirement for the reserve account goes away. But there are a few factors that you should consider if you’re joining a new marketplace and you’re concerned about the marketplace withholding some of your payments.
You might want to list a limited selection of your products or even limit the quantities of the items you sell when you first sign up for a new platform. Selling a lot of products immediately could put you in a bad financial position if you’re not getting paid for those products for a while. Selling an unusually high volume of products right after signing up could also trigger anti-fraud software and result in additional scrutiny into your account.
Claims Against Your Account
Amazon allows customers to file claims against merchants. If a customer files a claim against you, then Amazon will place the revenue from the disputed transaction in a reserve account. You will have an opportunity to discuss the claim with the buyer if you respond quickly enough, and you can even appeal a decision from Amazon if the marketplace rules against you. But while the dispute is still ongoing, Amazon won’t allow you to access the disputed funds.
You can prevent this type of hold the same way that you prevent chargebacks. Satisfied customers are less likely to file claims against a merchant. And if a situation like friendly fraud occurs, if you can show the customer that they made the disputed purchase that may convince them to drop the claim. That’ll free up the funds in the reserve account.
Conclusion
Online marketplaces withhold merchants’ revenue to protect themselves. If you can show a marketplace that your customers are happy and your shipments are on the way to their houses, the marketplace will be less likely to keep your funds in reserve. If the marketplace doesn’t know you well enough to trust you yet, then you might want to consider taking additional steps like selling a limited selection of products at first.
As for accounting automation, you can also use automated dispute management software to handle disputes. These apps are also known as chargeback management apps and chargeback automation apps. They’re designed to help you win chargeback disputes and by doing that they also make it less likely that a marketplace will withhold your revenue.