If you‘re an Amazon seller, you‘ve likely encountered the concept of "account level reserves" at some point in your ecommerce journey. But what exactly are these reserves, why does Amazon implement them, and how can you navigate them successfully?
In this comprehensive guide, we‘ll dive deep into the world of Amazon account level reserves, sharing expert insights, real-life examples, and actionable strategies to help you minimize their impact on your business. Let‘s get started!
What Are Account Level Reserves on Amazon?
At its core, an account level reserve is a sum of money that Amazon withholds from a seller‘s account balance. This reserve acts as a "safety net" to ensure the seller can cover potential financial obligations such as customer refunds, chargebacks, or A-to-Z Guarantee claims.
Blythe Craven, an ecommerce consultant who has worked with hundreds of Amazon sellers, explains it this way:
"You can think of an account level reserve like an insurance policy that Amazon takes out on your business. By holding a portion of your funds in reserve, they‘re essentially protecting themselves and customers from potential losses if issues arise with orders."
How Much Are Account Level Reserves?
The exact amount of your reserve will depend on a variety of factors, including your sales volume, seller history, and risk level. However, Amazon‘s documentation states that reserves can range anywhere from 3% to 100% of your processed payments over a given period.
To put that in perspective, let‘s say your Amazon store generated $50,000 in sales over the past month. If you‘re on the lower end of the reserve spectrum at 3%, Amazon would withhold $1,500 of your balance. But if you‘re a new seller on the 100% tier, you wouldn‘t be able to access any of that money until Amazon releases the reserve.
Where Can I Find My Account Level Reserve?
To check if you have a current account level reserve, follow these steps:
- Log in to your Amazon Seller Central account
- Click on "Reports" and select "Payments"
- Look for the "Statement View" tab
- If you have a reserve, it should be clearly labeled in your balance breakdown
Here‘s an example screenshot of what an account level reserve looks like in Seller Central:
If you see an amount under "Account Level Reserve," that‘s the portion of your balance that Amazon is currently withholding. It‘s important to factor this into your cash flow planning and budgeting.
Why Does Amazon Have Account Level Reserves?
Now that we‘ve covered the basics of what account level reserves are, you might be wondering why Amazon employs this strategy in the first place. While it may feel like Amazon is just trying to "hold your money hostage," there are actually several legitimate reasons behind the policy.
1. Mitigating Risk for Amazon and Customers
One of the primary drivers of account level reserves is risk mitigation. By maintaining a pool of seller funds, Amazon safeguards itself from losses related to things like refunds, cancellations, and claims.
As Kerry McDonald, a former Amazon Category Manager explains, "Amazon‘s first priority is always going to be protecting the customer experience. Account level reserves help ensure there is a ‘backup fund‘ available if a seller runs into issues and can‘t cover their financial obligations."
This concern isn‘t unfounded – in Q3 of 2020 alone, Amazon spent nearly $1.2 billion on fraud prevention measures, including refunds and reimbursements. Reserves help offset some of that risk.
2. Encouraging Responsible Seller Behavior
Account level reserves also serve as a layer of "motivation" for sellers to adhere to Amazon‘s high performance standards. The prospect of having your money temporarily held can be a powerful incentive to keep quality, shipping speeds, and customer service levels high.
Jamal Jenkins, a Seller Central forum moderator, puts it bluntly: "Reserves are almost like a ‘scared straight‘ tactic. Amazon is essentially saying, ‘Play by the rules, or we‘ll hit you where it hurts – your wallet.‘"
By tying up working capital, reserves make sellers think twice about cutting corners or taking risks that could result in a surge of refunds or claims. In theory, this leads to a better experience for shoppers overall.
3. Covering Regulatory and Tax Requirements
In some cases, account level reserves are put in place to ensure compliance with local laws and regulations. Many countries and states require marketplaces like Amazon to collect and remit sales tax on behalf of third-party sellers.
For example, in the UK, Amazon must retain a portion of seller funds to cover VAT tax obligations. Similar requirements exist in several US states and other global markets where Amazon operates.
By imposing reserves, Amazon essentially guarantees it will have the necessary funds on hand to appropriately pay out any tax liabilities, even if the individual sellers can‘t cover them out of pocket.
Understanding Amazon‘s Account Level Reserve Tiers
All Amazon sellers are grouped into different reserve "tiers" that determine how much of their account balance may be held, and for how long. Currently, there are three primary tiers in the Amazon reserve system.
Tier 1
Tier 1 is the default tier for new sellers and those who are considered "high-risk" by Amazon. The actual reserve calculation for this tier is the greater of:
- 100% of your sales from the past 7 days
- The total amount of any open/unresolved claims, chargebacks, or disputes
So if you‘re just starting out and had $1,000 in sales over the past week, Amazon would hold that full $1,000 in reserve. That‘s a significant amount of money to have stuck in limbo!
Tier 2
To graduate to Tier 2, you typically need to have completed at least 100 orders and maintained an account with Amazon Payments for at least 3 months. The reserve requirements for Tier 2 are a bit more lenient:
- 3% of your daily processed payments, averaged over the past 28 days
- The total amount of any open/unresolved transaction disputes
For example, let‘s say you average $2,000 per day in sales over the past month. Your baseline Tier 2 reserve would be $60 per day (3% of $2,000), plus any outstanding claims or chargebacks.
Tier 2-Plus
Tier 2-Plus is reserved for Amazon‘s most trusted and high-performing sellers. To qualify for this tier, you must maintain an Order Defect Rate (ODR) of under 1% for at least 60 days.
If you meet that criteria, your reserve will simply be equal to your balance of open claims and disputes. So if you have one A-to-Z claim for $100 outstanding, that $100 would be held, but the rest of your balance would be available immediately.
Here‘s a quick visual summary of the differences between the 3 reserve tiers:
| Tier | Qualifications | Reserve Calculation |
|---|---|---|
| Tier 1 | Default for new sellers | 100% of past 7 day‘s sales or open disputes |
| Tier 2 | 100+ orders and 3+ months with Amazon Payments | 3% of average daily sales or open disputes |
| Tier 2-Plus | Tier 2 criteria plus ODR under 1% for 60 days | Total of open claims and disputes only |
As you can see, the further up the tier system you progress, the lower your reserve requirements become. That‘s why it‘s critical to focus on maintaining strong account health metrics from day one.
Strategies for Avoiding and Reducing Account Level Reserves
While Amazon ultimately controls if and when reserves are placed on your account, there are still several steps you can take as a seller to mitigate their impact:
1. Maintain High Performance Metrics
One of the most effective ways to reduce your risk of reserves is to consistently hit or exceed Amazon‘s performance targets. That means:
- Keeping your ODR and Cancellation Rate under 1%
- Responding to all customer messages within 24 hours
- Maintaining a Perfect Order Percentage over 95%
- Minimizing late shipments and tracking number delays
According to Tanner Rankin, an account health investigator at Amazon, "We‘re always going to scrutinize underperforming accounts much more closely when it comes to holding reserves. Keep your metrics pristine and you‘ll be in a much better position."
2. Build Up a Track Record
The longer you‘ve been successfully selling on Amazon, the lower your inherent risk from their perspective. Aim to build a solid sales history over time by:
- Growing your order volume steadily every month
- Diversifying your product mix to appeal to more customers
- Expanding into multiple marketplaces and categories
- Establishing a strong brand with stellar reviews
Amazon wants to see that you have "staying power" and aren‘t just a flash in the pan. Demonstrating sustainable growth and consistently meeting customer expectations will help you establish credibility.
3. Resolve Claims and Chargebacks Promptly
If you do get hit with an A-to-Z claim, chargeback, or other dispute, make it a top priority to resolve the issue as quickly as possible. Remember, your reserve amount is directly tied to your balance of open claims – the faster you can close them out, the sooner you‘ll get your money released.
Be proactive in communicating with buyers, issuing refunds when necessary, and working with Amazon‘s dispute resolution teams. Sometimes just being responsive and diplomatic can lead to a claim being dismissed in your favor.
4. Proactively Communicate with Amazon
If you feel you‘ve been unduly saddled with a high reserve or that your account health doesn‘t warrant holding funds, don‘t hesitate to reach out to Amazon. While Seller Support can‘t directly adjust your reserve, they can at least note your concern and potentially investigate your account standing.
In some cases, simply explaining your situation and demonstrating a willingness to work with Amazon can lead to a reserve being lifted. It‘s not a guarantee, but it doesn‘t hurt to professionally state your case.
Even with the most diligent management, most sellers will likely experience some level of reserves during their Amazon tenure. The key is to prepare your finances to weather the temporary cash flow impacts.
One common challenge is ensuring you have enough working capital on hand to continue ordering inventory and maintaining operations, even with a portion of your balance inaccessible. Sellers should build up a dedicated "reserve" of their own savings to tap into when Amazon reserves hit.
Additionally, explore external financing options like Amazon Lending or third-party loans to help bridge any gaps. Just be sure to crunch the numbers and ensure you can afford any interest payments or fees.
It‘s also crucial to have detailed bookkeeping and forecasting processes in place so you can accurately model your cash flow and adapt your spending as reserve levels fluctuate. Work with an experienced ecommerce accountant to develop realistic budgets and contingency plans.
The Bottom Line: Reserves Are a Necessary Evil
There‘s no sugar coating it – account level reserves can be a major headache for Amazon sellers of all sizes. Having your hard-earned cash stuck in a holding pattern is never an enjoyable experience, especially when you‘re trying to grow your business.
But at the end of the day, reserves are simply part of the cost of doing business on Amazon. The platform has an obligation to protect its customers and stakeholders, and reserves are one tool they use to manage the demands that come with processing billions in transactions each year.
As Luke Carthy, an ecommerce growth consultant advises, "Instead of fighting tooth and nail against reserves, focus your energy on what you can control. Build a sustainable, customer-centric brand, keep your performance metrics in check, and cultivate a cash cushion so reserves don‘t derail you. It‘s all about being proactive instead of reactive."
By taking the time to understand Amazon‘s reserve system, implementing best practices to avoid triggering holds, and planning your finances responsibly, you‘ll be better equipped to navigate your selling journey successfully – even with a few reserve roadblocks along the way.
