PayPal’s official definition of an account reserve is ‘an amount of money that's put on hold in your PayPal account to help cover potential financial risk, such as payment reversals you may receive like chargebacks and claims’.

Or to put it another way - whenever your merchant account is flagged by PayPal’s algorithm as showing signs of unexplained spikes in activity or disputes with customers, it’s likely to trigger PayPal to put financial restrictions on the account to protect its buyers.

The three types of reserves are:

‍1. Rolling reserve

This tends to be the most common type of account reserve. In this case, a percentage of each payment received is held in reserve by PayPal for a predetermined time (up to 90 days), then released to the merchant.

Example: if your account is hit with a 10% rolling reserve and you receive a payment of $100, you will be able to immediately access $90 (90% of the payment) and the remaining $10 is put in reserve and only released to you after 90 days.  

‍2. Minimum reserve 

PayPal will want to maintain a reserve balance amount in your account. The exact amount will differ based on your historic sales activity, but other than that, the idea is that until the reserved balance amount is reached, every single payment you receive is put in reserve. From that point on, you will be able to access new payments you receive, but all the previous payments will be kept in reserve until the almighty gods at PayPal decide to release it to you. 

Example: say, PayPal implements a $6000 minimum reserve on your account. In the next 24 hours you receive $650 in payments. All these funds are immediately transferred over to the reserve; the merchant will not have access to it. In the following 10 days, the merchant receives $4300 in payments. Again, all the funds will be transferred to the reserve. Now, the total amount of payments received adds up to $4950. The next day, the merchant receives a $90 payment - $50 will be transferred to the minimum reserve; the remaining $40 will be made available to the merchant. Half an hour later, the merchant receives another payment of $310. Given that the minimum reserve has already been fully funded, the full amount of $310 is made available to the merchant. And so will the next payments, until PayPal decides to, once again, raise the minimum reserve. In that case, the process starts all over again.

3. Jumpstart reserve 

Imagine you have a PayPal balance of $5000. PayPal can decide to lock up $2000 and deduct it from your available funds immediately.

PayPal will periodically review an account (often every 180 days) to determine whether an adjustment is required. Reserves might be reversed/removed if your merchant reputation drastically improves due to positive changes to key areas such as a reduction in dispute rates, chargebacks, etc. 

Moreover, consistently uploading the order tracking information for every order will definitely go a long way towards getting in PayPal’s good graces.  Because uploading this information manually is a major time-suck and is error prone, smart merchants opt to sign up for Solpaid to make sure that order tracking information is always automatically uploaded to PayPal.

Not only does it help them become compliant with a key requirement from PayPal, but it also unlocks the opportunity to benefit from PayPal Seller Protection. It should be a no-brainer. Try it out yourself for free with our 14-day trial - no credit card required. 

‍

Source: The why and what of account reserves