Square is Withholding Money From Small Businesses: What You Need to Know

Square has placed "reserves" on a number of accounts, crippling businesses. Take steps to protect your income now.

Business owners relying on Square, Inc. to process payments at their point of sale now face struggles as the result of financial “reserves.” In a blog post, Square described reserves as a common tool in the payment processing industry to protect buyers. However, in practice this means many small business operators face financial strain because Square has opted to withhold upwards of 30 percent in revenue from businesses with reserves on their accounts.

Square could be holding your money.

Payment processors like Square want to ensure that merchants cover payment disputes or chargebacks in the event dissatisfied customers want a refund. This is especially true in volatile business climates like the one brought on by the current global pandemic.

Square calls its system of withholding funds “rolling reserves.” This means that a percentage of credit transactions is withheld from merchants to be released to them at a later time. If this happens to you, you’ll still find the funds in your account, but you can’t access them until the reserve period ends. This makes it difficult to operate your business and reliably make payments of your own.

How can you tell if Square placed a reserve on your account?

Square applies reserves after considering several factors when reviewing merchant accounts.

For example, if you take payment in advance of delivering purchased goods or services, Square might place a reserve on your account. Square also targets merchants who have a history of payment disputes and sporadic processing activity, especially those in industries with higher chargeback rates. Unfortunately, instances like these tend to increase during a time of reduced consumer spending.

Square places “Reserve Reports” in merchant accounts that have reserves on them. You can find the notice in the balance section of your Square dashboard. These reports are comprehensive invoices that detail how many funds Square is withholding from you and when you’ll be able to access them. Some small businesses have experienced reserves of up to 30 percent for 120 days, while others may have withholdings of 20 percent for 90 days. These rates aren’t fixed, but are decided on a case-by-case basis. You’ll be able to access the funds after the reserve period, but the amount depends on any payment disputes you’ve had for the reserve’s duration.

This puts a lot of financial stress on small businesses that may have already experienced a decline in consumer spending. While Square has stated their reserve policy will cover chargebacks to buyers, it presents new difficulties for merchants who use the payment processing system and rely on regular cash flow. Predictably, small business owners have now begun to struggle as a result of Square’s new policy.

The good news? Square notifies merchants over email before these reserves go into effect. If you think your business might fall victim to these withholdings, check for a notification about reserves in your email because you’ll have a window of opportunity to choose whether or not you want to continue processing with Square.

What are my other options?

Once you’re notified of a pending reserve on your account, there isn’t much you can do if you plan to continue using Square’s payment processing system. The company cites “macroeconomic environmental shifts” and changes in consumer spending as the causes for some industries becoming riskier than before, but they’ve essentially laid the groundwork for placing reserves on any account, at any time, for any reason.

No one can predict consumer behavior during unprecedented times, not Square and not you. While it’s Square’s prerogative to protect itself against further losses, you shouldn’t have to contribute to their financial cushion when facing troubles of your own.

Using Square with reserves on your account will lead to lower funds for your business now, a time when you likely need them most. Not only that, but even if the macroeconomic environment shifts back to normal and Square withdraws its reserve policy, you might still face withholdings until your reserve period lifts.

Find an ideal payment processing alternative.

If reserves pose an issue to you and your income, then you may want to consider moving away from Square. For businesses made uncomfortable by this sudden news, our Smart Service payment processing software serves as a great alternative to Square. Although shaking logistical practices up now might seem destabilizing, we haven’t enacted a new policy that will deflate your business’s month-to-month income. In fact, we offer next day funding so you get paid faster. That means you can access your funds when you need them; no reserve periods and no added worries. 

Competitive rates also help us guarantee cost savings, as we work with field service businesses to meet or beat their existing credit card processing rates. With its seamless integration into our Smart Service scheduling platform, you can also streamline your payment processing into the same software you create, schedule, and dispatch from.

We all need a bit of break these days. Big companies like Square are taking steps to protect themselves, maybe it’s time that you do the same.