Etsy withholding sellers’ money – what does this mean for small businesses?

Small business owners and craft makers are threatening to boycott Etsy for withholding their money.

The online marketplace has a reserve system to manage risks like customer refunds, but a BBC report reveals some sellers have had 75 per cent of their takings frozen for 45 days.

Many sellers are sole traders and not being able to access their funds may be harming their ability to trade and keep their business afloat.

Why has Etsy placed a reserve on my account?

New sellers or those with a sudden increase in orders could see a reserve placed on their account.

Other reasons include:

• no tracking information included on orders
• orders not dispatched on time
• an increase in the number of refunds

Etsy’s payments policy says reserve funds will be used “to address potential financial risk such as refunds, charge-backs, claims, or seller fees and charges” when the seller doesn’t have enough funds available to cover this.

But as buyers can be unwilling to pay for a tracked courier service, sellers are left without any way to remove the reserve on their account. This means, instead of waiting until the next working day for funds after a sale, many shops are having to wait 45 days.

What is a payment reserve?

The Etsy payment account reserve system can place a percentage of sellers’ funds on hold for a period of time. This effectively stops business owners accessing their money as they’re unable to transfer it into a bank account.

Two types of reserve

1. A fixed reserve means a fixed percentage of your takings will be placed in reserve for each sale, and for a set period of time. For example, 30 per cent of your takings could be in reserve for 45 days on a rolling basis.
2. A variable reserve can be used in addition to a fixed reserve, and is set by Etsy’s risk team.

Sellers find out they are placed on reserve by email, but there’s no advance warning for when this is going to happen.

Calls for sellers to boycott platform

Frustrated Etsy sellers are taking to social media to plan a strike on the platform.

The Etsy Reserve Strike group on Facebook has over 1,000 members, although it’s not clear how many will take action.

Meanwhile, a petition is calling for protection from Etsy’s 75 per cent payment reserve process for small businesses.

This comes a little over a year after sellers boycotted the platform in response to an increase in transaction fees.

How to avoid a reserve on your account

Etsy advises sellers to follow these steps to avoid having a reserve put on your account:

• add tracking to your orders after dropping off with your courier
• respond to customer messages quickly – ideally within 24 hours
• dispatch orders on time (and make sure your processing times are achievable)
• become a Star Seller

More guides for small businesses

• How to set up an online shop
• Do you need permission to run a business from home?
• How to sell on Instagram
• What type of business insurance do I need?

Have you been affected by Etsy withholding money from your shop? Let us know your experience in the comments below.