What exactly is a Reserve?
Reserves are a common industry practice used by payment service providers and other financial institutions to ensure that merchants are able to cover potential losses arising from, but not limited to, customer chargebacks or direct debit failures due to negative settlements.
Clearpay currently uses two different mechanisms to hold a reserve when required;
- a fixed, upfront amount provided at the time of initial onboarding
- a “rolling reserve”, where a percentage of each transaction is held in a reserve and released on a rolling basis.
These funds always belong to you and are only used by us if you are unable to cover any amount owing. If the reserve is not used, it is returned to you in full.
When does Clearpay decide to apply a Reserve?
We consider many factors before placing a reserve on your account, such as prepayment for goods or services, chargeback rate in your industry, chargeback rate for your account, sporadic processing activity, and new to Clearpay.
- Prepayment for goods or services. If you are allowing your customers to pre-order goods or services and you are collecting payment in advance of delivering the purchased goods or services, Clearpay may place a reserve on your account until we have a better understanding of your customer chargeback and refund rate.
- Loss rates in your industry. Some businesses sell products or services that are more prone to customer non-payment. This is especially true when a buyer may have a different expectation of the product or service than what is delivered. For example, custom-made products.
- Loss rate for your account. If a significant number of your customers are disputing their purchases and/or if you have insufficient funds to support these disputes, we may place a reserve until your rate of disputed payments goes down.
- Sporadic transaction activity. Variations or inconsistency in transaction sizes or methods, or how many payments you are taking within a given period, creates uncertainty around future cash flow, thus resulting in a reserve being placed on your account until a more consistent pattern is re-established.
- New to Clearpay. If you don’t have a transaction history with us, among additional risk factors, we may place a reserve on your account until we know more about you. Until you have gained transaction history with us, among additional risk factors, we may place a reserve on your account.
What is the Settlement Amount versus Reserve Amount?
The Settlement Amount is the net proceeds of orders (sale price and shipping costs), refunds, fees and any taxes due to be paid out to you (or collected from you where refunds, fees and taxes are larger than orders).
The Reserve Amount is a portion of the Settlement Amount set aside for a set number of days to cover potential losses.
When will I have access to my reserve funds?
Upfront Reserves. We will communicate the conditions upon which the funds in the Reserve will be released to you based on our continuous assessment and understanding of the risks associated with the performance of your obligations. We will endeavour to return such funds as soon as reasonably possible following the resolution of any such conditions which prompted the reserve.
Rolling Reserves. The terms of your reserve include two factors: a percentage and a duration period.
The percentage represents the amount of your daily processing that will be set aside in your reserve balance.
The duration is the timeframe in which we set aside these funds in your reserve before releasing them.
For example, if you have a 20% reserve rate with a 90-day duration, the 20% set aside in your reserve day 1 will be released back to your available balance 91 days from now and so forth.
There is no minimum requirement on your reserve balance.
How is Clearpay using my reserve funds?
The reserve balance is there to help protect us from losses we may suffer if you do not meet your obligations under the agreement. The reserve funds still belong to you and will be returned to you in full if not used to cover amounts you owe to Clearpay.
Clearpay will not use your funds for any other reason.
When will my account be reviewed?
The terms of the reserve are eligible for review 90 days after the date we place the reserve on your account, as notified by email to you. Please contact us after this date if you would like us to review the terms of the reserve.
If Clearpay reasonably considers that the reserve is necessary beyond the initial 90 days, we’ll continue to monitor your account to determine if your reserve should be modified or released. We will always notify you of any changes.
Can I reject your request to apply a reserve?
We will always notify you before any reserve goes into effect. However, if we have strong reason to believe that a merchant will not deliver goods to customers that will result in financial loss to Clearpay, we will hold the funds in reserve and only release funds back to the merchant as they start providing proof of delivery or other information that satisfies our concerns. This is standard industry practice. This means, that even if you terminate your agreement with us, we may still hold the funds in reserve until we are satisfied that our risk of financial loss is mitigated.
How do I receive Reserve Activity Reports?
Detailed reserves information can be downloaded by every Clearpay retailer from the Clearpay Merchant Portal. The data is provided in CSV format.
Log on to the Clearpay Merchant Portal and select the Reconciliation section. Select 'Reserve Activity Report' button to download reserves activity data. The following information is provided:
- Reserves Activity Type
- Activity Date and Time
- Reserves Amount Changed
- Reserves Balance