I Chose Square To Process Payments — Here’s My Biggest Concern

After careful consideration, I decided to recommend Square for my husband’s brewery, Nocturnal Bloom. However, I did so with a word of caution.

Square met most of our requirements, but concerns raised in online comments about merchant account holds gave us pause. Despite this, we ultimately chose to stick with Square as our POS system. It’s important for businesses considering Square to be aware of this potential issue.

A merchant account hold occurs when your payment processor retains the funds from card transactions processed by your business. While you can continue to accept card payments, you will not have access to the funds in your merchant account until the issue is resolved.

In more severe cases, a merchant account freeze may be implemented, which not only withholds your funds but also suspends your ability to process transactions.

The duration of a hold or freeze can vary and is dependent on your processor and the nature of the issue. Holds can last anywhere from days to months, with some processors stating they may hold funds for up to six months.

Merchant account holds are not exclusive to Square but are a risk associated with all payment service providers (PSPs). These companies, such as Square, Stripe, and PayPal, aggregate multiple merchant accounts, while individual providers like National Processing assign one account per business.

Although individual merchant accounts may require more setup and vetting, they are often more stable than PSP accounts. PSPs may not fully grasp a business’s risk profile until transactions are processed, leading to a higher likelihood of holds or freezes due to potential issues.

Merchant account holds can be triggered by various scenarios, including frequent chargebacks, undisclosed product sales, entering high-risk industries, sudden spikes in sales volume, and violations of agreements with the processor.

• Customers request chargebacks. Frequent chargebacks may lead to holds as they indicate potential issues with the products or services offered. Having clear return policies and accurate item descriptions can help prevent chargebacks.

• You’re selling items you didn’t disclose. Expanding into new product categories without informing your processor can raise flags. It’s important to communicate changes in your product offerings to avoid account freezes.

• You start selling high-risk products. Certain industries, such as membership clubs or credit repair agencies, are considered high-risk by processors like Square. If entering such industries, it’s advisable to work with a high-risk merchant account provider.

• Your sales volume surges. Significant increases in transaction amounts or volumes may trigger holds. It’s recommended to inform your processor in advance of any anticipated spikes in business to avoid processing interruptions.

• You violated your agreement. Understanding and adhering to the terms of your contract with the processor is crucial. Proactively addressing potential issues and seeking guidance from your processor can help mitigate risk.

Processors may also implement reserves, withholding a percentage of funds to cover potential expenses like chargebacks. Reserves are typically utilized for businesses at higher risk of such issues, and it’s advisable to inquire about reserve policies before signing up with a processor.

While Square imposes reserves on a small percentage of sellers deemed higher risk, it’s essential to understand how reserves can impact cash flow and business operations.

If you encounter fund holds or freezes, prompt communication with your processor is key. Reach out to their support team or representative to understand the situation and provide any necessary documentation or information requested. Acting swiftly and cooperatively can help expedite the resolution process.

In cases of prolonged issues, engaging a specialized payment strategies firm may be beneficial. These experts can assist in identifying the root cause of the problem and working with the processor to release frozen funds.

If the situation escalates and processing capabilities are entirely suspended, exploring alternative payment processors or securing a business line of credit can help maintain business operations during the resolution process.

Despite the potential risks associated with PSPs like Square, I believe it remains a valuable choice for businesses. Square offers competitive rates, affordable hardware, and user-friendly POS software, making it a popular option for small businesses.

The simplicity and convenience of an all-in-one solution like Square can outweigh the risks for many businesses, especially those in the early stages of operation. Proactive communication with the processor and staying informed about potential risks are essential strategies for mitigating issues.

As we navigate the challenges of launching our brewery, I will continue to monitor and adapt our approach to ensure a successful partnership with Square.