A holdback is a percentage of the receipts of a credit card merchant account which the merchant bank retains to cover possible chargebacks. After a predetermined time, the holdback is returned to the merchant. Merchant banks almost never pay interest on this money, and it’s not available for your business to use during the holdback period. So it’s a good idea to investigate a company’s policy on holdbacks before you sign up for a merchant account.
Pay attention to the chargeback policy and chargeback process as outlined in the company’s terms of service, and ask questions before you sign up. If your business is considered high-risk, you may have to have a reserve — a percentage of monthly charges which the merchant bank holds back in escrow in case of disputes or chargebacks. Particularly if you are doing most or all of your business online, ask questions about whether your business would be considered a high risk merchant account, and what that would mean in terms of holdbacks or reserves, before you sign with a merchant account provider.