Etsy’s Payment Reserve Policy: What You Need to Know

These days, the Etsy seller community is buzzing about payment reserves. In particular, some shop owners find that the reserve makes it hard to stay open. This has become such a problem that many UK sellers have stopped doing business on Etsy, and the British government has even opened an investigation.

But what is the reserve, anyway, and how can you avoid falling victim to one? In this article, we’ll look at the hows and whys of payment reserves. We will also talk about ways you can protect yourself and minimize the impact of any seller holds.

What is an Etsy payment reserve?

Generally, a payment reserve happens when any payment provider holds a percentage of earnings or payments in reserve. Funds will be paid to the account owner after certain conditions are met or a period of time elapses. Usually, payment reserves are expressed by a percentage of the total account holdings, such as 25%.

According to Etsy, payment reserve policies are common across e-commerce platforms. For instance, you can have a payment reserve on Amazon or PayPal. The idea of a reserve is to ensure that if something goes wrong with the transaction, such as a chargeback on the buyer’s credit card, the payment processor can cover the funds. Otherwise, the processor might lose money.

Another reason Etsy gives for its payment reserve pertains to the way in which Etsy collects seller fees. Usually, the money comes out of the payments received for each transaction. Therefore, if you sell something for $100, plus a $10 shipping fee, you won’t get all that money. Most sellers in the US, Canada, and the UK purchase their shipping labels through Etsy since the platform gets a discount on these postage purchases. That amount is then deducted from the $110 before the seller sees a cent. Similarly, Etsy will deduct its service fees, advertising fees, and payment processing fees. Under normal conditions, the seller receives what is left on their next deposit date.

With the reserve, Etsy withholds a percentage of the post-fee money for a period of time. These days, the most common percentage appears to be 75%. So in our example above, about $82 of the sale money is kept in the seller’s payment account and is inaccessible for the remainder of the hold. Postage and Etsy fees come out of the remaining $28.

How long do payment reserves last?

On Etsy, payment reserves are rarely longer than 90 days, though Etsy reserves the right to extend the hold. In practice, Etsy claims that the average hold time is two weeks from item shipment because the platform automatically tracks shipment. Typically, once Etsy determines that an item has shipped, they release the hold.

Unfortunately, many shop owners find that their money is held hostage for an extended period. In fact, one blogger found that Etsy frequently holds cash for the full 90 days, and the hold is often for a large number of items. This can put a shop owner into dire straits financially and can even lead them to close their shop.

Does Etsy impose payment reserves?

Once again, Etsy’s explanations and the experience of sellers do not necessarily match. However, there are a lot of lessons we can learn from Etsy’s publicly-available list of common causes. Let’s take a quick look at each one.

New sellers

Sellers that are new to Etsy are much more likely to face a pavement reserve. There are several reasons for this, and generally, they make a lot of sense. In particular, a new seller does not have a track record of reliability with Etsy. They haven’t been around long enough to demonstrate that they ship products when they say they will come and that the items shipped will be as described. For this reason, a new seller is at much higher risk from a payment standpoint.

Similarly, Etsy had a problem not long ago with scammers. The platform grew rapidly over the last couple of years, and along with that rapid growth came some bad actors. When people asked to get their money back from these bad actors, there was likely lots of trouble with Etsy recovering the money. This would have caused significant damage to Etsy’s reputation if allowed to go unchecked.

Shops that are experiencing rapid growth

Another reason for a payment reserve is rapid growth. In particular, if Etsy sees you’re getting a lot of sales very suddenly, they may put your account on reserve. The reason behind this is that sellers who get inundated with a lot of borders at the same time may have trouble fulfilling them within the expected time.

This particular cause of a reserve is a little trickier to navigate. That’s because the turnaround time for different product categories and business models can vary widely. It’s relatively easy to pack and ship a pair of vintage jeans within a few days. But if you’re creating a custom piece of pottery, that can take weeks. If the pottery seller gets a whole bunch of orders at the same time, they can get backlogged very quickly. This situation can lead to a poor buyer experience or a credit card chargeback.

Trouble with shipping

Consistent with Etsy’s focus on customer experience, certain problems related to shipping can lead to a payment reserve being placed on your account.

The first shipping-related cause of reserves is when Etsy cannot verify that your item has shipped. This happens most often when sellers don’t pay for shipping through Etsy’s platform. In many countries, this is not possible, so Etsy sometimes accepts proof of shipping from other sources. Here, Etsy holds the money in case a customer complains that their item never arrived.

The other shipping-related issue is if you shipped late. This often happens when you don’t indicate enough turnaround time on your Etsy Listing. Shops where the products have significant production time will often run into this problem.

Once again, the idea is to protect Etsy in case of chargebacks or other customer complaints.

Too many refunds

If customers ask for a lot of refunds, there’s a very high chance that you will get a payment reserve placed on your account. Typically, a lot of refunds indicate significant customer dissatisfaction, and if Etsy is constantly trying to collect refund money from your payment account, then it makes sense for the platform to protect itself. After all, credit cards and bank accounts are only good for a certain amount of money.

Intellectual property concerns

Although this reason is not in the main Etsy article, we know from various forums that certain policy violations can lead to payment reserves. By far, the most common is intellectual property violations — or in many cases, concerns over potential violations. For example, if you sell a vintage Louis Vuitton handbag and somebody accuses you of selling a fake, you could have your whole account placed on reserve.

In this case, the accuser doesn’t need to be the buyer of your bag. Almost anyone can file an intellectual property complaint, including your competitors. This is one of the ways in which competition can be unethical on Etsy. And the worst part is that your reserve will frequently apply to all of your sales, not just for the items in question.

How much money does Etsy hold?

Strictly speaking, it can be any percentage up to 100%. However, the most common figure we see is 75%, followed by 50%. Naturally, this huge percentage is a major burden on sellers, especially if they must buy materials or restock their store when the reserve hits. That’s one reason why seller groups are staging protests and calling attention to the reserves in the media.

Here’s the other problem — getting your money released is often difficult, especially for sellers outside the US. Recently, Etsy has made it easier for sellers to prove that they have shipped an item. If shipping issues are the reason for your reserve, you’ll probably get your cash soon after that. Otherwise, having your funds released before the end of 90 days is often difficult.

How can sellers reduce their risk?

Clearly, having a payment reserve placed on your Etsy payments account is a very unpleasant experience. And in many cases, sellers suffer a cash crunch that’s an existential threat to their business. Worse, the imposition of a reserve often seems arbitrary, especially to experienced sellers. While some risk factors, such as being new to the platform, are difficult to mitigate, there are some steps you can take to reduce your risk.

Set realistic turnaround times

Especially if you make items to order or offer customization, it’s important to set shipping times that fully reflect the amount of time it’ll take you to get the work done. Better yet, you can quote a slightly longer turnaround time than expected to protect your seller score and set reasonable expectations. Then, when a customer receives their product a little early, they’ll get a nice surprise.

Use Etsy shipping labels when possible

in some countries, Etsy lets you pay for shipping from inside your seller account. In this case, you’ll typically get an automatic tracking number. Etsy can see when you use these labels, and their computer Automations will monitor the tracking to your customer’s doorstep. Not only does this help you avoid payment reserves, but it also reduces your risk if a customer claims they didn’t receive their items because Etsy will have proof.

If you can’t use Etsy labels for whatever reason, get independent parcel tracking. Most couriers and national postal services offer tracking for an extra fee. Be sure to get that number and report it to Etsy when marking the product as shipped. Then, even if Etsy’s system doesn’t “see” the tracking number, you’ll have documentation.

Here’s a piece of good news – Because of seller activism (and some attention from regulators in certain countries), Etsy has made it easier to prove you’ve shipped something. They are also revising their reserve policy to reflect the realities in each country. We hope that this will reduce the number of accounts on reserve for something that’s beyond their control.

Respond to customers promptly

This suggestion is a best practice anyway, but staying in touch with customers helps to keep them happy. When you get good seller reviews and fewer complaints to Etsy, you’ll improve your seller rating. It’ll also demonstrate that you’re a low-risk seller, which means Etsy will have fewer reasons to impose the dreaded reserve.

Stay current with seller policies

Be sure and review Etsy’s seller policies regularly. This will help you stay in compliance with all the rules, which is beneficial to your account on many levels. For instance, not only will it help you avoid payment reserves but also other adverse actions against your seller account. And compliance will help you become a Star Seller.

Become a Star Seller

By far, this is the most effective way to avoid a payment reserve. That’s because current Etsy guidelines state that you won’t get reserves placed on your account if you’re a Star Seller. Because these sellers are the best on Etsy, they are considered trustworthy from a payment perspective. At the same time, being a Star Seller gives you many other perks, including greater visibility to customers.

Final thoughts

There’s no question that Etsy’s 2021 introduction of payment reserves caused an uproar. This is especially true when you consider that many reserves happen for reasons beyond the seller’s control, such as shipping availability. Luckily, Etsy is working towards a more fair process for sellers in certain countries.

Also, while some reserves are unavoidable (you can’t develop ten years of a track record in a month), there are ways to reduce your risk. The easiest way is to become a Star Seller and benefit from all the perks. In addition, many of the things that help you achieve that status are also effective at reducing payment reserves.

Ultimately, being a good seller is the best way to ensure your business stays on a firm financial footing.

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