It's no secret that Shopify has been holding a bunch of people's funds like crazy recently. Many clothing brand owners have been hit by what some are calling the "Shopify Rico." If you're wondering how to prevent Shopify from holding your funds and reserving your payouts, you're in the right place.

In this article, we'll dive deep into why Shopify holds funds, primarily due to chargebacks, and what you can do to prevent it. We'll also discuss strategies to reduce your chargeback rate and keep your business running smoothly.

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Overview of Shopify Payout Holds

Shopify may hold your funds if you have a certain amount of chargebacks. They will literally hold your funds on reserve for either 30 days, 90 days, or even 120 days to help mitigate risk. This can be a significant setback for your business.

Why Does Shopify Hold Funds?

All it takes is literally a chargeback rate over 1%. If you have a chargeback rate over 1%, then your account is going to get held. This means for every 100 orders, you cannot have more than one chargeback. If you have two chargebacks out of 100 orders, Shopify will put your account on hold.

The Impact on Your Business

When Shopify holds your funds, they may take a percentage of your payouts every time you get paid. For instance, they might take 20% of your payouts and hold it. Some people have 100% of their payouts held, meaning they can't touch their money at all for the hold period, which could be up to 120 days.

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How to Prevent Shopify from Holding Your Funds

While there's no surefire way to prevent Shopify from holding your funds, there are steps you can take to reduce the likelihood.

Reduce Chargebacks

The main source of the problem is chargebacks. 

Here are ways to reduce them:

• Clear Website Policies: Make sure your website has clear policies, including shipping policies, terms of service, and return policies.
• Use Shopify Apps: Install apps to help reduce fraudulent chargebacks. For example, the Disputifier App can automatically cancel high-risk orders.
• Don't Fulfill High-Risk Orders: Avoid fulfilling orders flagged as high-risk to prevent potential chargebacks.
• Improve Customer Support: Be proactive with customer inquiries to prevent dissatisfaction that could lead to chargebacks.
• Accurate Shipping Times: Ensure your shipping dates are correct and clearly communicated to avoid disputes over delivery times.

Consider Payment Providers

Some brand owners have switched payment providers to mitigate the issue.

• Switch to Stripe: If Shopify Payments is holding your funds, you might consider switching to Stripe. However, note that if your chargeback rate remains high, Stripe may also hold your funds.
• Evaluate Other Options: Look into other payment processors that might be more lenient but be aware that high chargeback rates can affect any provider.

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Dealing with Chargebacks

If you receive a chargeback, here's what you can do:

• Respond Promptly: Address the chargeback quickly through Shopify's dispute system.
• Provide Evidence: Submit any relevant information that proves the legitimacy of the transaction.
• Improve Practices: Analyze why the chargeback occurred and adjust your business practices accordingly.

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Maintaining Clear Communication

Communication is key to preventing chargebacks and, by extension, Shopify payout holds.

Update Your Website

• Terms of Service Checkbox: Implement a checkbox at checkout requiring customers to agree to your terms of service.
• Clear Product Descriptions: Ensure all products are accurately described to meet customer expectations.
• Transparent Policies: Make all policies easily accessible and understandable.

Customer Notifications

• Order Confirmations: Send immediate confirmations when an order is placed.
• Shipping Updates: Provide tracking information and updates on shipping status.
• Customer Support Access: Make it easy for customers to contact you with any issues.

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Is Pre-Order Dead?

Many have asked if pre-order is dead due to these issues. The answer is no.

• Clear Pre-Order Terms: If you're offering pre-orders, make sure it's clearly stated on your website.
• Communicate Delays: Inform customers about expected shipping times to prevent dissatisfaction.
• Set Expectations: Be upfront about any potential delays or issues that could arise.

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Conclusion

Dealing with Shopify payout holds can be challenging, but by reducing chargebacks and maintaining clear communication with your customers, you can minimize the risk. Remember, the key is to keep your chargeback rate below 1% to avoid triggering Shopify's reserve funds policy.

If you're proactive and make the necessary adjustments, you can continue to operate smoothly without the fear of having your funds held.