Tips for Small Businesses to Avoid Cash Reserves

How to prevent healthy business growth from becoming detrimental risk

As if the recession is not enough to deal with, for small and medium businesses that are growing during these hard times you need to be aware that your credit card processor may view your growth as a potential indicator that you are at risk of going under and institute cash reserves. Unfortunately the industry has learned from experience that some merchants, about to go under, commit fraud by processing bogus orders to bolster cash flow; which is seen by the processor as a spike in sales from the merchant. In a time where bankruptcies and business closures are rising it is only natural that processors are nervous.

An unfortunate byproduct of this negative behavior is that legitimate merchants showing too much growth over a short timeframe can also be branded as being at “risk”. For those of you that may not understand the way the relationship between merchants and processors works, the processor is on the hook to pay for any consumer losses, chargebacks, if a merchant goes out of business and cannot, or decides not to, cover those losses.

This being said, it should be understood that a spike in sales is not the only reason a processor may want to implement reserves, there are a number of factors that are looked at. The point is if you are one of the lucky few merchants experiencing growth you can take proactive steps that could help you avoid the reserves scenario.