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Payout Strategy

Prerequisites

Before optimizing payouts, understand:

"Where's my money?" is the most common payment operations question. Understanding payout timing, reserves, and cutoffs prevents cash flow surprises and angry calls to your processor.

Most merchants don't know their actual payout timing until they need money that isn't there.

What Matters​

  1. Standard payout timing varies by processor and risk tier. T+1 is not universal.
  2. Reserves are cash flow traps. Understand what triggers them and how to release them.
  3. Cutoff times determine when today becomes tomorrow. Miss the cutoff, add a day.
  4. Multi-currency payouts add FX timing complexity. Know when conversion happens.
  5. Your cash flow forecast must account for reserves, refunds, and chargebacks.

When Does Your Money Actually Arrive?​

Standard Payout Timing by Processor Type​

Processor TypeTypical TimingNotes
Aggregators (Stripe, Square)T+2 standardCan be T+1 or instant for fee
Traditional merchant accountsT+1 to T+3Depends on agreement
High-risk processorsT+7 or longerPlus reserve holds
PayPalInstant to PayPal balance, T+1 to bankVaries by account status

T+X means: Transaction on Day 0, funds arrive Day X.

Same-Day and Instant Payout Options​

Many processors offer faster payouts for a fee:

OptionTypical FeeAvailability
Instant payout1-1.5% of amountStripe, Square, others
Same-day ACH$1-5 flatSome processors
Next-day guaranteeIncluded or small feeDepends on account

Why Timing Varies​

FactorImpact
Risk tierHigher risk = longer holds
Volume historyNew accounts wait longer
Industry (MCC)High-risk MCCs have longer holds
Chargeback ratioHigh ratio = extended timing
Reserve statusActive reserve delays net payout

Understanding Your Reserve​

Reserves protect the processor from your chargebacks and refunds. They protect you from nothing.

Types of Reserves​

TypeHow It Works
Rolling reserveX% of each transaction held for Y days, then released
Fixed reserveFlat amount held until account closes or requirement lifted
Minimum balanceMust maintain balance; tops up from payouts if needed
Capped reserveRolling reserve until cap reached, then stops accruing

Typical Reserve Structures​

Risk LevelReserve Structure
Low riskNo reserve or 5% rolling / 30 days
Medium risk5-10% rolling / 90 days
High risk10-20% rolling / 180 days + fixed
Very high risk20%+ rolling / 180+ days

What Triggers Reserve Increases​

TriggerProcessor Response
Chargeback ratio spikeIncrease reserve % or extend hold period
Volume spike without noticeTemporary hold pending review
MCC changeRe-underwriting, possible new reserve
Fraud reportsImmediate reserve increase
Refund rate spikeMay trigger review

How to Negotiate Reserve Release​

  1. Build track record: 6-12 months clean processing history
  2. Request review: Formally ask for reserve reduction
  3. Provide documentation: Show stable financials, low disputes
  4. Offer alternatives: Higher processing volume commitment, personal guarantee
Ask Your Processor

"What are the criteria for reducing or releasing my reserve? When can I request a review?"

Payout Frequency Strategy​

Daily vs. Weekly vs. Monthly​

FrequencyBest ForTrade-off
DailyCash flow dependent businessesMore bank transactions to reconcile
WeeklyMost SMBsSimpler reconciliation, slight delay
MonthlyLow-volume, simple operationsSignificant cash flow delay

Matching Payouts to Expenses​

Align payout timing with your expense cycles:

  • Payroll on Friday? Ensure Thursday payout.
  • Rent due on 1st? Weekly payout ending before month-end.
  • Inventory purchases? Daily payouts if supplier terms are tight.

Multi-Account Payout Routing​

If you have multiple bank accounts:

  • Route operating expenses to primary account
  • Route reserves/savings to secondary
  • Some processors support split payouts

Cutoff Times and Batch Behavior​

Why Cutoff Times Matter​

Transactions after the cutoff don't settle until the next batch.

ExampleCutoff 5 PM ET
Transaction at 4:30 PMSettles today, arrives T+X from today
Transaction at 5:30 PMSettles tomorrow, arrives T+X from tomorrow

A Friday 6 PM transaction might not arrive until Wednesday (T+2 from Monday).

Common Cutoff Times​

ProcessorTypical Cutoff
StripeDaily automatic batching
Square5 PM local time
Traditional processors5-6 PM ET, configurable
PayPalVaries by transaction type

Weekend and Holiday Edge Cases​

ScenarioImpact
Friday after cutoffSettles Monday
Saturday/Sunday transactionsSettle Monday
Bank holidayAdd a day to payout
Processor holidayMay differ from bank holiday

Friday sales often don't arrive until Tuesday or Wednesday. Plan accordingly.

Multi-Currency Payout Complexity​

When Conversion Happens​

TimingHow It WorksImpact
At captureConverted when you capture paymentRate locked early
At settlementConverted when batch settlesRate may shift
At payoutConverted when funds transfer to bankMost rate variability

Holding Foreign Currency vs. Auto-Converting​

ApproachWhen It Makes Sense
Auto-convert to USDSimple, no FX management needed
Hold in local currencyYou have local expenses in that currency
Manual conversion timingYou want to optimize FX rates (requires attention)

Multi-Currency Reconciliation​

If you hold multiple currencies:

  • Track balances per currency
  • Reconcile in original currency first
  • Convert for reporting at consistent rates
  • Document FX gains/losses

Cross-link: FX and Settlement for FX mechanics.

Cash Flow Forecasting​

What to Include​

FactorHow It Affects Cash
Gross salesMoney coming in (eventually)
Payout timingWhen it actually arrives
Reserves heldMoney you can't access
RefundsDeducted from next payout
ChargebacksDeducted immediately + fees
FeesDeducted from payout or billed separately

Simple Cash Flow Model​

Expected cash =
  (Sales × (1 - reserve %))
  - Expected refunds
  - Expected [chargebacks](/docs/chargebacks)
  - [Fees](/docs/payments/buying-payments)
  - Payout timing delay

What to Tell Your CFO​

  • Don't report gross sales as cash. Report net after fees, refunds, reserves.
  • Track effective collection period. Payout timing + reserve release.
  • Flag reserve changes. A new 10% reserve on $100k/mo = $10k less cash flow.
  • Model scenarios. What happens if chargeback ratio spikes and reserve doubles?

Test to Run​

2-week payout audit:

Week 1: Baseline

  • Document current payout timing and frequency
  • Calculate actual T+X by tracking several transactions
  • Identify reserve structure and current balance
  • Map cutoff time to your sales patterns

Week 2: Optimize

  • Adjust payout frequency if needed
  • Request reserve review if eligible
  • Set up deposit confirmation alerts
  • Update cash flow forecast with accurate timing

Success criteria: Accurate payout timing documented. Alert system in place. Cash flow forecast reflects reality.

Scale Callout​

VolumeFocus
Under $100k/moAccept default payout timing. Understand reserve terms. Don't optimize yet.
$100k-$1M/moMatch payout frequency to expenses. Negotiate reserve terms. Set up deposit alerts.
Over $1M/moDaily payouts, multi-bank routing, active reserve management, cash flow modeling.

Where This Breaks​

  1. Unexpected reserve increases. A chargeback spike can trigger immediate reserve hold on money you were counting on. Build buffer. Monitor your chargeback metrics.

  2. Payout freezes during KYC/KYB review. Processor asks for documents, you delay, payouts stop. Respond within 24 hours. See AML basics for KYC requirements.

  3. Multi-currency reconciliation failures. FX conversions at different times create discrepancies. Use consistent conversion dates.

Alerts to Configure​

Set up these alerts for payout operations:

  • Deposit confirmation: Notification when payout arrives
  • Payout failure: Alert if scheduled payout doesn't process
  • Reserve change: Notification of reserve % or balance changes
  • Large payout: Notification for payouts above threshold

Cross-link: Alerts Configuration for setup details.

Analyst Layer: Metrics to Track​

MetricWhat It Tells YouTarget
Actual T+XReal payout timingTrack trend
Reserve as % of monthly volumeCash flow impactMinimize
Payout-to-sales ratioNet after fees/refunds/chargebacksTrack trend
Failed payout rateBanking issues0%
Cash conversion cycleSale to cash in bankMinimize

Next Steps​

Understanding payout timing?

  1. Check standard timing by processor - Aggregators vs traditional
  2. Know cutoff times - Miss cutoff, add a day
  3. Understand weekend/holiday impact - Friday sales → Tuesday cash

Managing reserves?

  1. Know reserve types - Rolling, fixed, minimum, capped
  2. Understand triggers - Chargebacks, volume spikes
  3. Negotiate release - Build track record, request review

Optimizing cash flow?

  1. Match payout frequency to expenses - Payroll, rent, inventory
  2. Build cash flow forecast - Include reserves, refunds, chargebacks
  3. Run payout audit - 2-week baseline and optimize