How To Handle A Frozen Funds as a Merchant

frozen funds
Taylor Stika
February 01, 2023

Recent statistics show that 55% of United States consumers pay online with a credit card. Imagine that you are an e-commerce business that cannot accept credit card payments. That means that you could lose out on over half of your sales.

Even if you have a payment processor, this could be a reality for your merchant account if you encounter frozen funds. A frozen account can happen anytime a payment processor suspects fraudulent activities.

Essentially, frozen funds can be detrimental to your business. Unfortunately, this can happen anytime without warning.

That doesn’t mean there are no solutions to fix such a dilemma. Keep reading to learn about frozen funds and what to do next should it happen to your merchant account.

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Frozen Account Versus an Account on Hold

An account on hold is not the same as a frozen account. When a payment processor puts a hold on a merchant account, it usually happens for certain transactions. You have access to some funds and a hold will not stop all transactions.

A payment processor could put a hold on a transaction you have because it needs a minimum reserve to cover possible costs like fraudulent transactions and chargebacks. You can continue to process customer payments while the payment processor keeps the funds on hold indefinitely. This is a deposit, of sorts, that you can recoup if you close your account.

If you have a frozen account, however, all your activity will halt. That is because the payment processor needs to hold the funds so they can investigate agreement violations or suspected fraud.

A merchant cannot process any transactions during an account freeze. Also, pending transactions cannot transfer to their bank account either. The most unfortunate part of a frozen account is that a merchant cannot accept cards until an investigation is complete and proves transactions to be legitimate.

How Long Does a Frozen Account Last?

Many payment processors will state in their contracts the duration of freezes. Some payment processors can freeze accounts for up to 120 days while they investigate fraudulent activities. Although, it does not mean it will take that long


It is important to work with the payment processor to resolve the issue to lift the freeze sooner . In fact, by working with the payment processor, you could unfreeze your account within a week.

While you want to cooperate, you also need to consider how you can accept payments during this time. Also, you want to learn why this happened to your account so that you can prevent it from happening again in the future.

What Now?

When you encounter a frozen account, talk with your processor, and find out what caused it. Ask what you can do so that the issue resolves quickly. While the payment processor may not explain everything they are investigating, they can tell you the reason for the freeze.

Further, the payment processor should be able to tell you how you can assist with their investigation. If they need documentation or information for a specific transaction, you will want to provide it as fast as you can and with transparency. You can resolve the issue quickly when you offer details quickly.

How to Continue Accepting Payments

While your merchant account is under review, you do not want to stop conducting business. In the meantime, you will need to accept other payment methods.

For in-person transactions, you can request cash payments. Just make sure you let the customer know upfront they need cash.

You can accept checks if you know and trust the customer. This could be an excellent alternative to credit cards. However, this does not mean you want to accept checks from everyone, as a bad check would bounce, and this will not help your situation.

There are peer-to-peer apps you can accept, like Zelle, PayPal, Venmo, and Cash App. Customers can send you money with these apps directly, and it will deposit in your app account.

For a backup to credit card payments, this is an excellent alternative. However, keep in mind that these apps are also subject to freezes if they see fraudulent activities.

A Backup Payment Processor

If you must accept credit cards, consider having a payment processor who is your backup. This doesn’t mean you should rush into a new contract.

Also, if you are a high-risk business that has a record of fraudulent activities, this may not be the best option. You may be on the MATCH list, or “Member Alert to Control High-Risk Merchants. This list is available to payment processors, and they will check it while reviewing new merchant accounts.

Preventing Harm to Your Finances

After speaking with the payment processor and assisting with the investigation, you will need to prioritize your expenses that are business-critical. You want to mitigate damage to your business finances.

Consider how you will pay employees, pause subscriptions you cannot afford, and pay for overhead that you cannot pause, such as rent. You will need to disable this option of payment on your eCommerce website and let customers know about the payment processing changes.

If you do not have savings to help you during this time, consider reaching out to organizations like a local Small Business Development Center of the US Small Business Administration for help.

How to Handle Frozen Funds

First, don’t panic. Talk to your payment processor and keep the lines of communication open. Also, have a backup plan while you have frozen funds.

This is how you can get back up and running with payments, and fast! If you are a high-risk business, you need to work with a professional payment processor that will work with you if they suspect fraudulent activities.

Zen Payments is the nation’s provider of merchant accounts with high-risk payment processing. For 15 years, they have supported high-risk businesses and given them the business tools they need for success. Contact Zen Payments today to learn more.

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Taylor Stika is the CEO and Founder of Zen Payments. With a background in the payment processing industry starting in 2015, Taylor has extensive experience in managing and optimizing payment systems. Under his leadership, Zen Payments has grown and developed into a reputable provider of high and low-risk payment.

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