A rolling reserve does not end on a date, and lifting it takes another 90 days to finish

A merchant asked me last year when her reserve would end, and I told her it ends when the risk ends. That was bad advice dressed as reassurance. A rolling reserve does not end on a date at all, and the mechanics are written out with numbers in the agreement she had already signed.

So what is a rolling reserve and when does it end? I went looking for the answer in the 2 places that actually define it in public: the PayPal user agreement, which spells out the maths with an example, and the Stripe documentation, which describes a different kind of reserve altogether. Reading both took most of an evening, and the useful part is 1 paragraph long.

The definition, with the numbers left in

I use PayPal’s wording because it is the clearest public version I have found. It defines the rolling reserve plainly. A rolling reserve is “a percentage of each transaction you receive each day is held and then released later on a scheduled basis”, and then it works the example in the plainest possible way. The reserve “could be set at 10% and held for a 90-day rolling period”, so 10 per cent of day 1 returns on day 91, 10 per cent of day 2 returns on day 92, and the agreement finishes that sentence with etc.

Read that last part again. Each day starts its own 90-day clock. There is no single end date, because the reserve is not a deposit. It is a queue.

I had assumed the opposite for years, and I said so on calls: that a reserve was a lump the provider sat on until it decided to let go. The lump model predicts one release event. The queue model predicts hundreds of tiny ones, and only the queue model matches the sentence above.

I would make merchants read that example out loud before signing anything. The agreement also says rolling reserves are “the most common type of reserve”, which matches what merchants describe to me and did not match my mental model of a rare emergency measure.

What actually happens when it is lifted

This is where my answer to her was wrong in a way that costs money. I sent a correction 2 days later. Lifting a rolling reserve stops new money entering the queue. It does not empty the queue, and nobody at the provider is obliged to explain that distinction while delivering the good news, so the month after a release often reads like a 90 per cent release rather than a whole one.

Take a shop taking 60,000 dollars a month at 10 per cent held for 90 days. On any settled day it has roughly 18,000 dollars in the reserve, which is 3 months of held slices. The provider agrees to remove the reserve on 1 October. From that date nothing new is held, and the 18,000 already in the queue keeps coming back in daily slices until the last day’s 90 days expire at the end of December. The reserve was lifted in October and the money finished arriving in December. That gap is the whole reason to know the mechanics.

The other reserve, which does not roll at all

I mix these 2 up in conversation more than is reasonable. The same agreement names a second category, and they get confused constantly. A minimum reserve is “a specific minimum amount of money that you’re required to keep available in the balance of your business account at all times”.

A minimum reserve arrives in 1 of 2 ways: taken “as an upfront amount deposited all at once”, which the agreement calls an upfront reserve, or built up from percentages of sales until the minimum is reached. Both can sit on an account at the same time as a rolling reserve, and the agreement says so.

The practical difference is the exit. A rolling reserve unwinds on its own once new holds stop. A minimum reserve does not unwind at all: it stays until somebody decides to release it, and I have not found a clause anywhere that obliges a provider to revisit that decision on a schedule.

What decides whether you get one

PayPal lists 6 factors and calls the list non-exclusive: how long you have been in business, whether your industry has a higher likelihood of chargebacks, your payment processing history with PayPal and with other providers, your business and personal credit history, your delivery time frames, and whether you have a higher than average number of returns, chargebacks, claims or disputes.

I suspect the factor list is read by almost nobody until a notice arrives. Two of those 6 are about time rather than risk in any behavioural sense. Being new and shipping slowly counts against you before you have done anything wrong, and I would rather a merchant knew that going in than discovered it in a notice.

The agreement also reserves the right to act “at any time”, and says the decision may rest on “confidential criteria” that the provider is not obliged to explain. My guess is that this is why reserves feel arbitrary from the merchant side: the reasoning genuinely is not disclosed, and that is written down rather than being a failure of customer service.

Stripe calls something else a reserve, and it matters

Then there is a third meaning. If you run a platform with connected accounts, the word means something different again. Stripe describes a `connect_reserved` balance held on the platform account to cover negative balances of connected accounts, moved by a balance transaction of type `reserve_transaction`, and released the same way once the connected balance improves.

The timing has its own number. After Stripe withdraws from a connected account’s bank account to cover a negative balance, “we hold the platform reserve for that account for an additional 3 business days”. Ordinary payouts are separate from all of this: charges land in pending and become available “on a 2-day rolling basis”, with the timing varying by country and account.

So 1 word covers 3 different things: a risk hold on your sales, a standing minimum balance, and a platform-level buffer against somebody else’s negative balance. I still find that harder to explain to merchants than any of the arithmetic.

How I put a reserve into a cash plan now

The percentage is not the number that matters, the standing balance is, and the 2 are related by a formula simple enough to do in your head: monthly revenue multiplied by the percentage multiplied by the period expressed in months.

At 10 per cent held for 90 days, the queue holds about 3 months of slices, so a shop at 60,000 dollars a month carries roughly 18,000 dollars outside its own cash at all times. Double the percentage to 20 and that becomes 36,000. Halve the period to 45 days and it drops to 9,000. The formula is monthly revenue times the percentage times the period in months, and it is worth putting on the same row of the forecast as rent, because it behaves like a deposit you cannot spend.

Growth makes it worse before it makes it better. A shop growing 15 per cent a month adds to the queue faster than the queue releases, so the standing balance keeps rising even while every individual slice comes back exactly on time. That surprised me the first time I modelled it, and it is the reason a reserve hurts most in the months a business is doing well.

The exit needs its own line too. Ask for the release date and then add the full reserve period to it, because the money finishes arriving that much later. On a 90-day reserve lifted on 1 October the last slice lands at the end of December.

Two things to fix before signing and one after a notice

Before signing, get the percentage, the period and the category in writing. Rolling and minimum behave differently on exit, and an agreement that says only reserve tells you nothing about whether the money unwinds by itself.

Also ask what changes them. The agreement gives the provider the right to place a reserve “at any time” and to notify you of new terms when its risk assessment changes, so the honest planning assumption is that today’s 10 per cent is a current setting rather than a term.

After a notice arrives, the useful move is not an appeal. It is arithmetic: work out the standing balance at the new percentage, compare it with the cash you hold, and decide whether the business can run for the period at that level. Then ask about the 6 factors by name, because they are the only published grounds, and 2 of them, delivery time frames and returns, are inside your control within a quarter.

Questions we get

These come up whenever a notice lands, and 3 of the 5 are versions of the same question about timing.

Before the answers, 1 number worth carrying: at 10 per cent for 90 days the standing balance in the queue is roughly a quarter of a month of revenue multiplied by 3, which for a 60,000 dollar month is 18,000 dollars sitting outside your cash plan at every moment. That figure, not the percentage, is what belongs in the forecast.

How is a rolling reserve calculated? As a percentage of what you receive each day, held for a fixed number of days from that day. The published example is 10 per cent held for 90 days, so day 1’s slice returns on day 91 and day 2’s on day 92.

What is a minimum reserve, and how is it different? A fixed amount you must keep available at all times, taken upfront in one go or built from sales percentages. It does not unwind by itself when holds stop, which is the opposite of how a rolling reserve behaves.

When does an upfront reserve come back? The agreement does not say. It defines the upfront reserve as the way a minimum reserve can be taken, and I cannot tell you a release date because none is published anywhere I looked, which means the honest answer to a founder asking when their upfront reserve comes back is that it returns when somebody at the provider decides to look at the account again.

Why do funds show as pending rather than missing? Because that is how reserved money is displayed: the agreement says funds under reserve “will be shown as pending” and that you will be notified of the terms.

Can the terms change after they are set? Yes. On notice rather than on agreement: if the risk assessment changes, “we’ll notify you of the new terms”. Planning cash on the current percentage is planning on something the other side can move.

A short digression about the word reserve

I would rename 1 of these 3 things if I could. In banking a reserve is money you hold against your own obligations. Here it is money somebody else holds against yours, and the same word does both jobs in the same sentence when a payments lead talks to a CFO. I am mildly annoyed that the agreements are clearer about this than the industry is. Anyway, back to the queue.

What is not settled here

What percentages and periods acquirers actually use. The published example is 10 per cent for 90 days, everything else I have seen is anecdote, and I do not know of a source worth quoting.

Whether the card networks require or forbid any of this. Their core rules were outside this piece, so nothing here describes them.

Whether a reserve has to be reviewed on a schedule. I have not found a clause that says so, and the absence is the part I keep thinking about, because it means the exit depends on somebody choosing to look again.