During a recession acquirers are more inclined to see a merchant's increase in sales as a risk.

Legitimate merchants showing too much growth over a short period of time can be deemed high risk and the acquirer may decide to implement or increase reserves. But merchants who find themselves in this scenario can take steps to avoid credit controls.


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Press Release:Tips for Small Businesses to Avoid Cash Reserves in a Recession

Red Bank, May 19, 2009/PRNewswire/ - 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.

FirstOpen Communications†- Talk with your processor, tell them about your growth, show them recent press releases or financials that show your growth is in fact healthy. Make sure to talk about why you are experiencing growth in a down market. Did you reduce your prices? Do you have the market cornered? New hot product releases? Did you get better pricing on your goods?

Second:†Set Expectations†Ė Let them know if you are going to be having any type of large promotion, sales event or hot new product release. No one likes to be surprised, and you donít want the processor to sound the alarm when they see your sales skyrocketing from sales of the next Tickle-Me Elmo craze they didnít even know you were selling.

ThirdCustomer Service Signals†Ė I canít say this with enough emphasis, you need to manage your customer service signals, chargebacks, credits and refunds.† If you successfully open a dialogue and set expectations but your customer service signals donít support the story you are telling; you are going to have a tough road to travel.

FourthCreate a Competitive Situation†Ė If you are experiencing significant growth, consider connecting to a second credit card processor and running a small portion of your transactions through the second account. This will reduce load on the first processor, making growth look smaller, and it provides you leverage to pressure your credit card processors to reconsider cash reserves


About the Fraud Practice

The Fraud Practice,, is a privately held US LLC based in Sarasota, Florida. The Fraud Practice provides consulting services on eCommerce payments, fraud prevention and credit granting as well as prepared research and online training for payment and fraud professionals. Businesses throughout the world rely on The Fraud Practice to help them build and manage their payment, fraud and risk prevention strategies.


The Fraud Practice LLC
David Montague,
President and Executive Consultant
Toll Free: +1 888-227-0402


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