How To Prevent Merchant Account Holds, Freezes, & Terminations

Merchant account holds and freezes can seriously disrupt your cash flow. A hold means your processor is keeping some of your money temporarily. A freeze means you can’t process card payments at all until the issue is resolved.

Whether you’re running an online shop or a storefront, knowing the difference can save you a lot of stress (and cash flow headaches). In this guide, we’ll break down what holds, reserves, and freezes are, why they happen, and what you can do about them.

What Is A Merchant Account Hold?

A merchant account hold happens when your processor withholds part of your funds to cover possible chargebacks, refunds, or fraud.

Holds are usually applied to transactions that look unusual for your business. The withheld funds are held in a separate, secure account.

You may still be able to accept payments while funds are held. However, if a processing freeze is put on your account concurrently, you won’t be able to accept card payments.

What Is A Merchant Account Reserve Fund?

A reserve is money your processor keeps as a safety net. There are two main types:

What Is A Merchant Account Freeze?

A freeze is more serious than a hold — it shuts down your ability to accept card payments while your account is under review.

A freeze is put in place when there is suspicious processing activity or contract concerns. Once a review is conducted, you may get a reserve placed on your account. If a breach of contract occurred, the merchant account may be terminated.

Unlike an actual termination, a freeze can be temporary.

The Differences Between Holds & Freezes

What Causes A Merchant Account Hold Or Freeze?

Processors usually act when they see risk. Common triggers for holds and freezes include:

• Excessive chargebacks
• Big spikes in sales volume
• Incorrect or incomplete business info
• Suspected fraud or money laundering
• Unpaid merchant fees
• Selling in a restricted industry
• Legal orders your processor must comply with

What Is A Merchant Account Termination?

A termination means your processor closes your account permanently. Accounts can be terminated as a result of major contract violations, fraud, or misrepresentation on your application.

If your account is terminated, your name goes on the Terminated Merchant File (TMF), making it harder to open a new account.

If your merchant account has a hold placed on it or is currently frozen, your processor will investigate to ensure that your business is complying with the merchant agreement. Unless you’ve violated your processor’s terms, a hold or freeze usually won’t lead to termination — but it can still disrupt your cash flow until the review is complete.

Are Merchant Account Fund Holds & Freezes Legal?

Yes, account holds and freezes are legal. When you signed your contract, you gave the processor permission to:

• Hold funds
• Freeze services
• Terminate your account

Big names like Square, Stripe, TSYS, and Fiserv all have terms with clauses that reserve their right to initiate account holds, freezes, and reserves.

What To Do If Your Account Is On Hold, Frozen, Or Terminated

If you experience a merchant account hold, freeze, or termination, there are steps you can take to help resolve the problem or reduce the financial hardship your business may experience.

If Your Account Is On Hold Or Frozen

• Call customer service: Stay calm and cooperative.
• Provide documents quickly: This may include invoices, receipts, contracts, or bank statements.
• Be patient: The processor decides how long the review takes.
• Keep cash flow moving: Consider a working capital loan or line of credit.
• If reinstated: Clarify expectations to avoid repeat issues.

If Your Account Is Terminated

• Find another processor: It may be difficult if you’re on the TMF.
• Cash-only option: This works for some industries, but not all.
• High-risk processor: You may need to pay higher fees for stability.

How To Avoid Holds, Freezes, Or Terminations

The best defense against holds, freezes, or terminations is prevention. Here’s how to reduce your risk.

Pick the Right Type of Processor

Not all processors are the same. Some are quick and easy but can freeze funds, while others take more setup but offer stability. Here’s a quick look at your main options.

• Direct Merchant Account: Best for established businesses with steady volume.
• Third-Party Processor: Third-party processors (also known as payment service providers or PSPs) like Stripe and Square make it easy to get started, but are more likely to freeze funds.
• High-Risk Merchant Account: For industries like adult services, collectibles, or vapes. It’s stable, but more expensive.

Set Expectations & Stick To Them

Big spikes in sales volume can actually raise red flags, because processors value consistency. They expect you to process a consistent volume every month with mostly consistent ticket sizes.

The key is being clear about what volume of card payment transactions you expect to do and then sticking to it. If you expect a spike (sale, launch, seasonal event), tell your processor ahead of time. Clear communication is a crucial step to maintaining your account.

Be Honest About What You Sell

Don’t misrepresent your business to avoid higher fees. This trick may save you money temporarily, but it will backfire.

Read your processing agreement carefully and make sure you know what it says about making changes to your business. A good rule of thumb is that if you expand into new products, notify your processor as soon as possible.

Keep Accounts Separate

Don’t use one merchant account for multiple businesses. Any sort of suspicious activity can trigger a review, so a series of transactions from a side business could trigger a hold or freeze, or affect your processing limits.

If you have a new side project, make sure to open a new account or use a PSP like Square.

If you’ve been in business for a while and have a good relationship with your processor, it’s always worth asking about opening a second merchant account. Because you have an established history, it should be easier than if you were starting from scratch.

Minimize Chargebacks

Although chargebacks are inevitable for most merchants, there are a few steps you can take to prevent them from affecting your merchant account.

Excessive chargebacks can lead to holds, freezes, and terminations. Aim to keep your chargeback ratio under 1% of total transactions, although your processor may have stricter guidelines.

To potentially prevent chargebacks, make sure to post clear return policies in your brick-and-mortar business or on your website. You should also make it easy for customers to get in contact with you so that you can resolve any issues before a chargeback is filed.

Minimize Fraud

Credit card fraud is a common problem for both consumers and merchants, so it’s important to take steps to protect your business and customers.

For eCommerce businesses, most online payment processors offer fraud detection tools like machine learning to identify suspicious transactions and address verification service (AVS) checks. Note that while these tools are available, it’s your responsibility to enable these tools and monitor them closely.

If you own a brick-and-mortar business, you should take basic steps to protect your business, such as checking IDs and avoiding keyed transactions whenever possible.

Keep Documentation

Chargebacks can happen up to 180 days after the date of the purchase, and in legal agreements, reserve accounts can be held up to 180 days or more for chargebacks, warranty claims, or return requests.

To protect your business, keep receipts, invoices, and contracts for at least six to nine months after transactions have settled. This is especially important for large transactions or unusual transactions that are outside of your scope.

Communicate With Your Processor

Communicate with your processor before anything goes wrong. Alert them if you’ll process unusually large sales. If your business is growing, ask about raising limits. Finally, be sure to build a relationship with your account rep so you can feel comfortable asking questions or discussing your account.

The Bottom Line On Merchant Account Holds & Freezes

Merchant account holds and freezes are frustrating, but they’re also part of the credit card processing world.

At the end of the day, your best defense is transparency, communication, and a backup plan. Don’t wait for a freeze to learn this the hard way