Recovering from Covid crisis, contractor hits roadblocks with Square payment processing

Recovering from Covid crisis, contractor hits roadblocks with Square payment processing
Jesse Larsen was thrilled to get back to work as restrictions related to the Covid-19 pandemic started to be lifted. But he still can’t hire back his full crew because the company processing credit and debit card statements is now holding 30 percent of all his transactions for four months. (photo courtesy of Jesse Larsen)

The state is finally allowing contractors to work. But business owner Jesse Larsen in Olympia says getting paid is the issue now.

His customers are fine, but it's his credit and debit card payment system, called Square, that's the problem.

“30 percent. I don’t know of any business that can sustain losing 30 percent of their revenue. That’s more than some people’s profit margin. So you are killing businesses,” says Jesse.

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Yes. Square is holding 30 percent of his money for 120 days. That’s four months.

“Approximately 12 hundred dollars was taken out of a 36 hundred dollar transaction. I thought it was maybe a mistake,” says Jesse.

It wasn’t, according to an email Jesse got from Square on April 23, informing him the company would be placing a reserve on his account.

University of Washington Law Professor Anita Ramasastry says there’s not much Larsen, or other business owners, can do about it.

“So, if you look at their terms of service, it’s pretty much like ‘we can do whatever we want.’ That’s unfortunate,” she says.

Anita says that’s the trade-off: customers want Square’s convenience and lower fees. But the company has its terms.

“Close your accounts without any notice, hold more funds in reserve and hold it for as long as they think is necessary. And They’re not going to tell you the reasons why they are doing this. It’s part of that secret sauce. It’s that proprietary algorithm that they use,” says Anita.

Making matters worse, one of the reasons Square says it can hold payments is for sporadic activity.

“I would think everybody would qualify for that after being shut down for Covid,” says Jesse.

We asked Square why they’d hold Jesse’s cash. They said less than one percent of accounts worldwide have reserves applied. And they sent this statement:

"Like most payment processors, we may use reserves to ensure that these sellers are able to cover things like disputes, refunds, or outstanding fees without running a negative balance on their accounts."

But Jesse says he’s never had a dispute or a charge-back on his account. And he says he spent weeks calling and emailing Square for an explanation.

“I said, is there anything I can do about this? Can I give you some bank statements, can I give you some more information to get these funds released? They basically said ‘nope,'” says Jesse.

Professor Anita Ramasastry believes Square’s tactics will protect them in the short term, but may lose them customers eventually.

“If we are seeing many more of these circumstances where businesses are not only suffering because of the economy, but are now also suffering because of their payments processing – and then square itself is going to have to adapt its business methods if it does want to remain competitive,” she says.

With that 30 percent reserve, Jesse says he’s forced to operate with a skeleton crew rather than hiring back all his workers. Ultimately, he says he has no choice but to move on to another payment processing company.

“It just seems like they’re really taking it as an opportunity to cover their own side of things and not worrying about the little guy who keeps them alive.”