[drone]

Depending on your history, and how your merchant account is backed, you may in fact also be required to hold a cash reserve with the merchant bank. Holding all, or a percentage of transaction funds is called a "rolling reserve," and it's one of the worst things that can happen in these deals if you have substantial turn-over in cash. My experience has been that direct merchant banks like to ask for specific reserve amounts based on your activity/risk profile, and places like paypal like rolling reserves. (This is not an exhaustive analysis, simply my experience.)

The problem with cash reserves is that they hold cash for product you have already delivered, a 90-day 100% rolling reserve means that you are effectively extending net-90 terms for all of your customers. You're issuing credit, but not collecting any interest on it, while you have to pay your own vendors and other service fees/employees in the mean-time.

Another side-effect of this is running negative cash flows when your business surges. Say your business booms around the holidays, to meet the demands, you place larger orders with your vendors, and thereby incur larger costs - but have to pay them out of reserves from a slower period in the year. You cash flow for that ninety days around the holidays would be substantially negative (you've paid out a lot more than you've paid in), and the interest you may have to accrue from your vendors to float until disbursement may greatly exceed the nominal transaction fees you'd pay if you didn't have a 100% rolling reserve.

Generally speaking, I've always found higher fees (up and to a point) to be better than higher reserves. If you can combine just-in-time manufacturing (or purchase) with credit terms from vendors, you can "play the float" wherein you're paid today for something you don't have to pay for until a month (or, in reality, as much as 59 days later on a net-30 account) down the road. This is very effective at the beginning of the year for LLCs where members need to distribute all profits at the end of the year to members due to taxes being due, and minimizing the re-capitalization of the business to get through the 1st quarter.