Reserves, Holds, and Payouts: What to Ask a Processor Before You Sign

Square is exiting CBD. If you sell primarily CBD, your account closes November 5; mixed-catalog sellers have to pull CBD by October 15 — both ahead of the federal hemp law that takes effect December 11. So you’re switching on a clock.

Now when you switch under a deadline, things can get tense. Especially when it comes to signing terms you didn’t read closely. The part of a processor relationship that quietly costs you money later isn’t the rate card. It’s these three things: reserves, holds, and payout timing. Read them before you sign, not after.

Reserves: the money they keep in case

A reserve is a slice of your sales a processor holds back as a cushion against future chargebacks or refunds. In regulated categories, some reserve is normal. It’s not a red flag by itself. The red flag is the shape of the reserve, and whether you were told about it up front. The three you’ll most likely run into:

• Rolling reserve: holds a percentage (often 5–10%) of each batch and releases it on a schedule, say 90 days later. It’s always revolving.
• Capped reserve: holds back until it reaches a set amount, then stops.
• Upfront reserve: taken before you even start processing.

What you want is a reserve you were told about in plain numbers before you signed — the percentage, the hold period, and when it releases. “We’ll let you know” is not a term. It’s a surprise waiting to happen.

Holds: why funds freeze, and the pattern to avoid

A hold is when a processor stops your payouts — sometimes one transaction, sometimes your whole balance. It happens for real reasons: a chargeback spike, or a mismatch between what you actually sell and what you were underwritten for. The pattern that burns CBD sellers is the one you may have just lived — onboarded fast with no real category underwriting, then frozen weeks later when a review catches up, with your money stuck. The fix isn’t hoping it won’t happen. It’s being underwritten correctly for your real business up front, so there’s nothing to “discover” later.

Payout timing: when the money actually lands

Ask what your settlement schedule is — daily, every few days, weekly — and whether it changes by risk tier or during your first few months. Cash flow is the whole game when you’re running a store. A processor that funds you on an unpredictable schedule is a problem even when the rate looks good.

The questions to ask before you sign

1. Is there a reserve? Rolling or capped? What percentage, and what’s the release schedule?
2. Under exactly what conditions can you hold or freeze my funds?
3. What’s my payout schedule — and does it change by tier or over time?
4. Who makes these calls — your in-house underwriting, or a third party?
5. Can these terms change after I sign, and how will you tell me?

A processor built for your category will answer all five in plain language, on the first call. If you can’t get straight answers, that is your answer.

What this looks like done right

Bankful is a Square partner that’s specialized in payments for regulated categories — CBD included — for over a decade. That means your risk level is priced in from day one, your terms (reserves included) are on the table before you sign, and the same team stays on your account. No conditions that appear weeks later. See the full switch checklist and what to have ready.

If you’re staring at a cutoff, the move is the same as it’s always been: switch once, to someone who chose your category on purpose.

–– Bankful provides payment software services under the Bankful Software Agreement. Depending on the arrangement, Bankful may be the direct processor or may orchestrate routing to a third-party processor. Eligibility to process, including approval, continued processing, holds, freezes, and account termination, is determined by the processor of record under its own terms, which vary by provider and may change. Merchants are responsible for understanding and complying with their processor’s terms of service and acceptable use policy.