Merchant Hold/Freeze

A merchant hold, also known as a funds hold, occurs when a credit card processor or acquiring bank temporarily retains the funds from certain credit card transactions instead of depositing them into the merchant's account. This hold can be triggered by various factors that might indicate a higher risk of fraud or chargebacks, such as a sudden increase in transaction volume, a large number of refunds, or unusual transaction patterns.

A merchant account freeze is a more severe action where the processor prevents the merchant from accessing any funds in the account. This freeze can last up to 180 days, depending on the perceived risk and the policies of the processor or bank. During this period, the funds are held in reserve to cover any potential chargebacks or disputes that may arise. This is often used as a protective measure by the processor to mitigate potential losses.

Both holds and freezes can have significant impacts on a business's cash flow and operational capabilities. They are typically employed as precautionary measures by processing institutions to safeguard against losses from high-risk merchants or suspicious activities that deviate from the normal pattern of business. It is crucial for merchants to maintain clear and open communication with their processors, adhere strictly to best practices in transaction processing, and work proactively to resolve any issues that may lead to a hold or freeze. This includes keeping detailed records of transactions, promptly addressing chargebacks and disputes, and ensuring compliance with all contractual obligations with their processors.