Your Business Credit

What to do if your payment processor withholds payments

Square has been placing a percentage of certain customers’ payments in reserve, and many businesses aren’t happy


Square recently began withholding some customers’ payments for transactions in a “rolling reserve” to protect merchants in the event of chargebacks, and many businesses are against it. Here’s what you can do if this policy doesn’t work for you.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

If you accept credit cards at your small business, you may have followed some of the news coverage of Square’s decision to place a percentage of certain customers’ payments for transactions in a “rolling reserve” balance to be released to their account 120 days after the original transaction date.

Withholding reserves in this way is legal, and it is a common practice in the payments industry, but it represented a change for Square. More than 2,500 businesses have signed a petition against this policy on

Check out all the answers from our credit card experts.

Ask Elaine a question.

Why is Square withholding payments?

In a blog post on the decision, Square said it was doing this to protect consumers in the event of chargebacks. The company noted that fewer than 0.3% of its merchants have reserves on their accounts, and that it used the reserve policy for more “risky” sellers.

In the risky category, it includes those who take pre-payment on goods and services delivered at a future date, sell dispute-prone goods or services or operate in an industry that historically has received more chargebacks than others.

Some merchants have complained they don’t fit this definition but still have had their transactions placed in reserve, as the New York Times reported.

The company said in it blog post, “[W]e provide all sellers with advance notice of reserves being applied to their account so they can choose whether or not to take future payments with us. Sellers also have the option to refund a payment back to the buyer and take an alternative form of payment, which releases the funds in the reserve.”

The company added that it had recently enhanced its reserve process “by ensuring that sellers receive an even earlier notice of a reserve decision before the policy goes into effect.

“This gives them more time to choose whether they want to continue processing with Square under these new conditions, in advance of taking more payments,” the company said.

See related: How can I dispute a credit card chargeback?

Alternatives to Square

So what are your options if Square’s policy doesn’t work for you and you don’t want to sign up for a merchant account?

One thing you can do is find a different way to accept payments, as Square noted on a blog post in June about its rolling reserve policy, “sellers always have a choice.”

There are several payment processors that allow you to accept credit cards without a merchant account. Square’s competitors include Clover, which offers Clover Go, a contactless card reader, and PayPal, which includes the PayPal Card Reader.

See related: Square vs. PayPal Here: What’s best for your business?

Bottom line

With economic conditions changing rapidly, what worked for your business in 2019 might not work as well in 2020 and beyond.

Staying on top of all of your payment processing options – and perhaps using a combination of providers to make sure you are not overly dependent on any one – will allow you to continue accepting credit cards without missing a beat.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Your Business Credit

How to stay creditworthy if you’ve gotten COVID relief

Lenders have become more concerned about accurately gauging the creditworthiness of borrowers, given that credit reporting on those who avail of COVID relief doesn’t give them the best picture.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more