How long can a payment processor hold funds from my business?


Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes “Your Business Credit,” a weekly column about small business and credit, for

Ask a question.

QuestionDear Your Business Credit,
there laws – state or federal – that govern how long a payment processor like eBay,
PayPal, Amazon, Stripe or can hold on to your funds (from
customer payments) without disbursement to your bank?  – Lucia

AnswerDear Lucia,
This is a great question – and it is one that many small
merchants wonder about. It can wreak havoc on your cash flow if money a
customer has sent you is tied up by the payment processor. That’s especially
true if the payment in question is for a big-ticket item.

I ran your question past Fenella Kim, founder, president and
CEO of Reliance Star Payment Services in Great Neck, New York.

“How long the processor can hold the funds is determined by the
card brand association (Visa, Mastercard, Discover and American Express), not
state or federal law,” she said in an email. “Typically if it is related to a
risk and security issue, the payment processor can hold the funds up to 180

Avoid suspicious transactions

You might not like to hear that answer, but it does offer
some clues as to how you can prevent payments from being tied up in the future.

First, make sure you are not skipping over any of the basics
of processing transactions correctly. It’s easy, especially during the holiday
season, to rush and make mistakes, so create a checklist for yourself to be
sure you are not missing any steps. Any mistakes you are making could lead to
delays in payments being processed.

Second, make sure you are following the guidelines from
credit card issuers and your merchant processor on screening risky and
fraudulent payments. I’ve covered this topic in previous columns such as “How
to know when a credit card charge is a scam
,” but given that crooks are
constantly coming up with new ways to defraud merchants, it’s good to keep up
on the latest information both card issuers and payment processors are issuing
on this front. The more you can do to avoid suspicious transactions, the less
likely your payments will be held up.

For some merchants, selling a particular product in a
category processors deem “high-risk” is what leads them to transactions that
get delayed. For instance, products related to adult entertainment and
cigarette and e-cigarette businesses are considered high risk.

Consider changing payment options

If you find that one product is especially problematic for
you, I’d carefully consider how important it is to your overall revenue and
profits and make an executive decision on whether you should keep selling it. Your
time is worth money, and if you are spending hours sorting through payment
hassles, then you could actually be losing money on selling it. That time might
be better devoted to marketing a product that sails through the payment process
smoothly every time.

I’d also consider the payment options you are offering customers
carefully. There are many ways merchants can get paid today. If you are having
trouble with one particular type of payment processing and your customers use
it very infrequently, then it might be worth discontinuing it and suggesting
another payment option to customers.

If you need to rely on that type of payment processing and
keep running into problems, try contacting merchant services for the processor
and ask for advice. They might be able to point out best practices that will
help you stop your payments from being delayed. Cash flow is the lifeblood of
every small business, so it’s worth devoting some time to getting this right.

 See related: How to verify a customer transaction made by phone

Original Source