A small business owner forwarded us an email they received from Square that describes a policy to protect its cash flow in favor of small businesses maintaining liquidity during this coronavirus crisis.
The business owner noted he has no payment disputes or chargebacks, and even after contacting Square’s customer service regarding this issue, they confirmed his account is in good standing with no issues.
Furthermore, he said that none of the links provided by Square worked nor do the directions the payment processor provided to find the “Reserve Report” on his home page or dashboard work.
We realize this is a challenging time for many business owners, and we remain committed to supporting you.
Like other payment processors, we periodically review your sales to assess the risk of payment disputes. In a recent review of your account, we determined that we have to hold a portion of your transfer in a reserve balance. Beginning <redacted>, 30% of each transaction on your Square account will be stored in your reserve balance, and will be released 120 days after the original transaction date.
What is the function of a reserve?
This reserve is a percentage of your processing volume that is set aside for a specific period of time to protect you and Square from unexpected loss events.
How do we make this decision?
We apply a reserve based on several different factors, including but not limited to:
• Goods or services that may be more prone to receiving payment disputes
• Length of time you’ve been processing payments with Square
• Business documents we may have on file
How does this affect my business?
This does not affect your ability to accept payments in any way. Your reserve balance exists as added protection in the event you receive a payment dispute from a customer and there aren’t enough funds in your linked bank account and available Square balance. That’s when the reserve balance is there to help.
Where can I learn more?
You can find more information along with the current balance of your reserve in your Reserve Report.
Can my reserve change at any point?
We’ll keep an eye on your account and conduct periodic reviews to determine if your reserve should be modified or removed entirely. Of course, we will always notify you of any changes. And you can also find more detail in our Terms of Service.
Why is This Email Troubling?
When the business owner contacted Square’s customer service, he told us they provided no additional information regarding this matter. He wondered why a business with no chargebacks or payment problems is singled out under this policy.
According to him, the company did not give him a specific reason or performance metric that should have triggered the policy, an apparent complete lack of transparency by Square on this matter.
During a time when many companies are trying to help small businesses survive these challenging times, it appears Square is applying non-challengeable actions against small companies with little notice and provides no recourse or actionable details.
This begs the question, why does Square feel the need to hold funds in a reserve account (escrow account) when the merchant account is in good standing?
Recently, Square warned investors it was facing a declining payment processing environment due to the coronavirus outbreak.
Square is a popular payment processor for many small and micro-businesses that require point-of-purchase and online payment processing.
The company’s payment processing service has become a go-to solution for many entrepreneurs as it provides modern integrated off- and online services.
Presumably, many of its customers fall into non-essential business categories and are dealing with rapidly declining sales or a complete business shut-down because of coronavirus stay-at-home orders.
Therefore, Square’s warning about its declining gross processing volume (GPV) may show the company is concerned about its cash balance as it is expecting a larger than normal refund and chargeback volume.
Square Policy Appears to Favor Its Liquidity Over Small Businesses
Since none of the links or directions provided to the business owner to access this “Reserve Report” work, this seems to suggest this is a new policy, hastily enacted by Square.
Unlike small businesses who have to box their way through the narrow door to SBA coronavirus relief programs, public companies have access to capital markets to raise cash if needed.
While card processors and banks may have to deal with more chargebacks during this time of crisis, even in its warning to investors Square still expected a profit.
It doesn’t make any sense for Square to hold funds on accounts that have a perfect record and it seems to be a very Draconian and not a very well thought out plan.
The only conclusion that can be drawn from this action is that Square is more concerned about its liquidity than the liquidity of the small businesses it serves.
Have you received a similar notice from Square? We would love to hear from you and we’ll keep your identity confidential.
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