Merchant Account Holds and Freezes: All You Need To Know

Merchant account holds and freezes disrupt your business by hindering cash flow and your ability to take card payments, so it’s important to understand why they occur and how to avoid them.

Account freezes or holds usually happen when your provider suspects fraud and needs to investigate, but that’s not the only reason. For example, frequent chargebacks can also prompt a merchant account provider to freeze your merchant account, since they may see this as an indication that you have bad business practices.

Read this guide to learn everything you need to know about merchant account holds and freezes, including what to do if they happen and how to avoid them.

What Are Merchant Account Holds and Freezes?

Merchant account holds and freezes are two different types of actions your merchant account provider can take while investigating potential fraud:

• Merchant account hold: your merchant account provider temporarily holds back funds from a sale. Instead of passing funds from the sale onto your business bank account, the merchant account provider deposits them into a secure escrow account until the hold is lifted.
• Merchant account freeze: your merchant account provider temporarily limits your business’s ability to process new card payments. When a freeze is active, you can’t accept any credit or debit card payments using your merchant account.

Merchant account holds are typically much less disruptive than freezes since they don’t limit your ability to accept payments, but they can cause temporary cash flow issues.

How Long Can a Merchant Account Hold or Freeze Last?

Merchant account providers use holds and freezes to give them time to investigate transactions before transferring funds or processing additional payments. Your provider can impose holds and freezes separately or simultaneously, and the duration varies depending on what triggered the restriction.

The time you can expect to wait depends on the scenario:

• Standard risk review (minor anomalies): 1 to 7 days. If your provider flags a single unusual transaction, you can often resolve the issue within a few days by providing documentation such as invoices or receipts.
• Compliance or identity verification issues: 7 to 14 days. If your provider needs updated documents, such as a director’s ID or proof of beneficial ownership, the hold typically remains until you submit the required information.
• Chargeback-related holds: Up to 120 to 180 days. If your provider anticipates chargebacks, they may hold funds for the full chargeback window to cover potential liabilities.
• Post-termination reserves: Up to 180 days. If your account is terminated, your provider will usually hold any remaining balance to protect against chargebacks that could arise after closure.
• Regulatory or legal freezes: Indefinite. If authorities request a freeze under anti-money laundering (AML) laws, the account can remain frozen until the investigation concludes, which could take months or even years.

Importantly, there are no UK regulatory limits on how long payment processors can hold merchant funds. The commonly cited 180-day maximum comes from card network chargeback liability windows, not from the law. Because of this, it’s essential to understand why your account has been restricted and to work proactively with your provider to resolve the issue.

Causes of Merchant Account Holds and Freezes

Merchant account providers can put a hold or freeze on your account for several reasons. Let’s take a closer look at the most common causes.

Excessive credit card chargebacks

If your business has a lot of credit card chargebacks, your merchant account provider will want to find out why. Merchant account providers take chargebacks seriously because they can indicate your business isn’t fulfilling sales or isn’t taking measures to prevent fraud. As a result, having too many customer disputes (generally above 1%) indicates risk and could lead to holds or freezes.

Even if you successfully reverse chargebacks, they can still be counted against your business in the eyes of your merchant account provider, so it is always advisable to follow best business practices, such as using 3D Secure 2 customer authentication for card-not-present transactions and having a clearly displayed refund policy, to avoid being flagged.

Suspicious transaction volumes

If your business normally processes 10 transactions per month and then suddenly processes 100 transactions in a month, your merchant account provider is likely to consider this suspicious. The same is true if your average sale is £50 and then you have a single transaction that’s £800.

Suspected fraudulent transactions

If your merchant account provider suspects that your business is defrauding customers, it is likely to put a hold or freeze on your merchant account while an investigation is underway.

Late payment for merchant account fees

If you haven’t paid your merchant account fees, your merchant account provider can respond by placing a hold or freeze on your account.

A hold or freeze instituted for this reason will normally be lifted when you make a payment, but too many of these occurrences could lead to contract termination.

Violating terms of service

If you violate the terms of service for your merchant account, your account provider can activate a hold or freeze. Possible ways you could violate the terms of service include:

• Expanding your business into an industry that your merchant account provider does not support
• Accepting payments on behalf of another business
• Processing more transaction volume than your contract allows
• Selling prohibited items (e.g., CBD, firearms, adult content) without prior authorisation

Hidden red flags beyond chargebacks and spikes

Beyond chargebacks and sudden changes in transaction volume, other operational and compliance gaps can also trigger account freezing.

For instance, “inconsistencies in business details, such as differences between your website, descriptor, and merchant application form, can raise suspicion,” said Vatsal Bhandari, a Certified Anti-Money Laundering Specialist with experience in banking and finance law.

“If refund procedures are slow or involve manual steps, it could cause issues in the future,” he added. “Finally, poor customer support, such as unanswered emails or unclear policies, often results in account freezes due to ensuing disputes.”

Legal requests

Legal or investigative authorities, such as the police or tax authorities, can ask your merchant account provider to place a hold or freeze on your account. Many merchant account providers will comply with these requests even if they aren’t legally required to.

How Holds and Freezes Can Affect Merchants

The consequences of a merchant account hold or freeze extend well beyond the immediate inconvenience.

• Cash flow disruption is the most immediate problem. When your merchant bank provider holds funds, you lose access to money you’ve already earned. This can make it difficult to pay suppliers or manage day-to-day operating costs. For businesses with tight margins, even a short hold can create serious financial strain.
• Inability to accept card payments is the consequence of a full account freeze. Given that the vast majority of UK retail transactions now happen via card, losing the ability to process payments can bring your business to a standstill. Cash-only operations are rarely viable for most modern businesses.
• Reputational damage can follow if customers experience declined transactions or delayed refunds. Negative reviews and social media complaints can spread quickly, and the damage to your brand may outlast the freeze itself.
• Long-term business viability is at stake in severe cases. If your account is terminated, you may be added to industry warning lists, making it difficult to obtain a new merchant account. You may have to work with high-risk providers that charge higher fees and impose stricter reserve requirements.

As Bhandari noted, “the rules can be quite harsh – small or new businesses may be treated the same as malicious actors because risk models tend to focus on patterns rather than understanding the full context.” He added that “for [small businesses], they can even threaten their very survival.”

Merchant account holds and freezes: Real-world example

Consider this scenario: a small UK ecommerce business selling handmade jewellery experiences a viral social media post. Orders surge from the usual 20 per week to 200 in just three days. The merchant account provider’s automated systems flag this as a potential “bust-out” fraud attempt, where criminals process fake orders before disappearing with the funds.

The provider freezes the account and holds £8,000 in recent sales. The business owner can’t access these funds to buy materials for the orders she needs to fulfil. She also can’t process new card payments, so she loses additional sales. It takes two weeks and multiple document submissions to resolve the freeze.

During this time, she misses supplier payment deadlines, incurs late fees, and receives several negative customer reviews due to delays. Even after the freeze lifts, the reputational damage lingers, and she spends months rebuilding customer trust.

How To Avoid Merchant Account Holds and Freezes

There are a few things you can do to minimise the likelihood of triggering a hold or freeze on your merchant account.

1. Reduce your risk of chargebacks

Chargebacks are one of the most common causes of merchant account holds and freezes. They can result from chargeback fraud, but also from instances in which a customer received a damaged product or a product that was significantly different from what was promised.

If you’re selling online, make sure that your product descriptions and photos are accurate and up to date. Establish good, consistent communication channels so customers can contact your business when a problem arises rather than initiate a chargeback.

If you sell paid subscriptions, make it easy for customers to cancel. Overly complicated subscription cancellation processes are a big motivator for false chargeback claims.

2. Actively look out for fraud

Accepting fraudulent transactions can result in a high number of chargebacks as well as scrutiny from your merchant account provider. So, it’s important to be on the lookout for fraud, especially concerning online purchases:

• Make sure you require a customer to enter their card’s expiration date and card security code (CSC), also known as CVV, in addition to the card number
• Enable two-factor authentication (2FA) for online purchases, which requires customers to verify their identity via a second method, such as a text message code or banking app confirmation
• Contact the customer for confirmation if you receive an unusually large purchase
• Be on the lookout for purchases with mismatched shipping and billing addresses

For in-store purchases, one of the best ways to defend against fraud is to use a credit card machine with an EMV chip reader. EMV chips are much more difficult for fraudsters to counterfeit than magstripes, and if fraud occurs on a chip transaction, liability typically shifts to the card issuer rather than your business.

Many payment processors now offer machine learning tools that analyse transaction patterns in real time and flag suspicious activity before it becomes a chargeback.

3. Be honest about your business to your merchant account provider

You must be honest about the nature of your business when applying for a merchant account. If you fudge the truth, your merchant account provider will find out about it eventually, and your account could be terminated as a result.

That means you need to accurately describe your industry, what your business sells, and the average transaction volume you have. If you make changes to your business or expand into a new industry, let your account provider know. If you start a second business or a side hustle, it is advisable to open a separate merchant account rather than use the same account.

4. Communicate proactively with your provider

One of the best ways to avoid a hold or freeze is to communicate with your merchant account provider proactively as soon as you think there might be a problem.

For example, if you have an unusually large transaction, call your account provider’s fraud and risk team to let them know about it. Consider providing invoices or receipts so that they can verify the transaction before a hold is necessary.

5. Never use your merchant account to accept payments from another business

This might seem obvious to some, but you should never use your merchant account to accept payments on behalf of another business.

This violates the terms of most contracts and can lead to odd patterns in transaction volume or amount, which your provider can flag as potential fraud.

What To Do if Your Merchant Account Is on Hold or Frozen

Holds and freezes are at the discretion of your merchant account provider, so there isn’t much you can do to get a hold or freeze lifted. Their investigation must run its course.

However, there is definitely one thing you can do: contact your provider and ask whether there’s any documentation you can provide to speed up the investigation. This could include receipts, invoices, or even bank statements. Providing bank statements enables a merchant account provider to evaluate your cash flow and determine whether you can repay funds in the event of a chargeback later.

Bhandari recommended being proactive with your documentation.

“Tracking numbers, delivery confirmations, signed contracts, or records of service completion linked to specific transactions are accepted as proof that everything has been completed and is legitimate,” he said. “Providing a brief, written explanation of what happened and the steps you’ve taken to prevent it from happening again can be very effective.”

During a freeze, you can continue to accept cash payments, but you won’t be able to accept card payments. If a hold or freeze is creating cash flow problems for your business, you can consider seeking a short-term business loan to cover expenses.

What to Do if Your Merchant Account Is Terminated

Your provider may decide to terminate your merchant account at the end of the investigation. If that happens, you’ll need to find a new merchant account provider.

That can be challenging since your business will be added to the Terminated Merchant File (TMF), which most merchant account providers check before issuing new accounts.

You will likely have to work with a high-risk merchant account provider. These merchant account providers typically charge higher fees, take longer to transfer funds to your business bank account, and may require you to post collateral funds in an escrow account. All of these factors are likely to increase the cost of doing business.