What to Do When Your Merchant Account is Frozen

Having your merchant account frozen by your payment provider can be one of the most disruptive things you and your business can experience. Payment processors sometimes warn businesses their merchant account is about to be frozen, but in our experience, they rarely do. Instead, the provider simply turns off your service and keeps your money on hold; it’s up to you to figure out why, and what to do next.

Clearly, this impacts your business — instantaneously. No sales are processed, and there is a series of other cascading results, such as:

  • Not having money to pay your employees, your rent, or your suppliers
  • Your business may miss out on an investment or a supplier discount
  • All money you process can be held up to 90 days

The list of other immediate negative results goes on.

In addition to these severe adverse consequences, a frozen merchant account can cause long-term damage, such as:

  • Your payment processor noting the freezing of your account on your record
  • Your bank balances and reconciliation will be off balance, which would create further administrative work
  • Your reputation may be damaged, perhaps severely

If your merchant account gets frozen, your recent transactional funds will be held by your payment processor. Sometimes they will hold your money for up to six months, or longer. If this happens, you may need to close your business, or a portion of it, until the underlying problem is solved.

Let’s get into why this happens, how to prevent it, and—if it does happen—what to do about it.

The Main Reasons Why Payment Processors Freeze Merchant Accounts

If your merchant account has been frozen, you may be in panic mode, wondering why this happened — especially if you didn’t expect it to. Sometimes, there are very good reasons why merchant accounts are frozen. Let’s take a look at one valid reason why your account may be frozen:

Your processor may be missing administrative information on your account, and may have tried, unsuccessfully, to contact you. There are usually two pieces of information a payment processor may be looking for if they freeze your merchant account, proof of a transaction, especially a large or out-of-the-ordinary transaction, or your most recent financial statements. If your payment processor can’t contact you, they may freeze your account to get your attention, or hold funds that have been recently processed. Needless to say, this kind of action by the provider will certainly get your attention!

8 Other Reasons Why Your Merchant Account May Be Frozen

1. When a large or unusual transaction was processed and needs to be verified, and your account has been frozen, it is because the transaction was larger than the your per-ticket size transaction allowance—i.e. the amount you have been approved for. In this case, the processor puts the account on hold, for your benefit and security. The funds may only be released after you approve the purchase.
2. There is a court order against your business, or your funds are being garnisheed. In this situation, the court may have contacted your payment processor to stop or suspend transactions.
3. Your payment processor has decided to put a reserve on your account due to its own risk assessment. This can happen in cases of businesses with future payment for delivery of goods or services.
4. There are too many chargebacks on your merchant account, and the processor has decided to place your money no hold so they protect themselves against potential risk.
5. There is suspicious or fraudulent activity on your account, which requires an in-depth investigation.
6. You’ve gone over your processor’s contractually agreed-upon daily or monthly processing limit.
7. The bank kicks back your money (usually the result of the bank having wrong or incomplete information, or an administrative error).
8. There is a high volume of fraud going through your account.

Three Actions to Take If Your Merchant Account Is Frozen

Despite these potential reasons and issues, there are three things we recommend that you do if your merchant account gets frozen:

1. Call your payment processor’s 1-800 help number, or your relationship manager, and request an explanation for the hold.
Someone at the help desk, or your relationship manager, should know why the account was put on hold, and who has the authority to release it.
2. Depending on the underlying reason why your funds were placed on hold, make sure you supply the payment processor with all relevant information they request.
If the hold is due to a large, unexpected or unusual transaction, make sure you send your processor relevant information on your customer (including best contact information), as well as information on the purchase made.
If the hold is due to a fraudulent transaction, or a series of fraudulent transactions, you may lose the transaction if you do not follow the guidelines of payment acceptance.
3. Get professional industry help.
At Merchant Broker, we are team of trained professionals when it comes to releasing funds from reserves. With a proven track record of releasing over $1.5 million dollars in reserved funds, we know the best ways to negotiate your way out of what can be a very disruptive situation.

Next Steps

If you choose to cancel your merchant account due to your account being frozen, keep in mind the affected funds will only be released 90-120 days after your merchant account has been closed, unless otherwise determined by your payment processor. Always keep a close eye on your bank account to ensure that your funds are deposited on time, and always stay in close touch with your payment processor.
And remember: a payment processor can only freeze your account for legitimate reasons. So, before getting upset and wanting to cancel your merchant account contract, make sure you understand the reasons behind the hold, and then consider your best and most effective recourse.

If you don’t know what to do next, don’t fully understand the reasons behind your frozen merchant account, or if you are frustrated dealing with your payment processor, give us a call. We’ve been through these issues and negotiations before, and we can help you get your merchant account unfrozen.

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