How TikTok Shop's Rolling Reserves Affect Your Cash Flow

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TikTok Shop US has recently implemented a rolling reserves system, designed to mitigate potential financial risks arising from refunds, disputes, and fees faced by sellers. This initiative is consistent with the platform’s ongoing commitment to financial stability and integrity in transactions since its inception in September. The continuous refinement of rules and requirements is aimed at improving the e-commerce experience on the platform.

Understanding Rolling Reserves: A rolling reserve is a financial safeguard that entails setting aside funds to cover possible liabilities, thus adding a layer of security within the TikTok US Shop’s operational framework.

Rolling Reserve Policy

This policy delineates the methods for calculating reserve amounts, durations, and reserved funds, with the objective of minimizing risks associated with refunds, disputes, and seller fees. It applies to all sellers using both “Ship by TikTok” and “Ship by Seller” shipping methods for selling products on TikTok Shop.

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Key Definitions:

1. Reserve Percentage: This is the portion of each settlement amount reserved by TikTok Shop for each order ID over a specific period.
2. Settlement Amount: This refers to the total revenue for a period after deducting platform fees and returns, including warranty reimbursements.
3. Reserve Amount: This is the total calculated by applying the reserve percentage to the settlement amount for each order ID.
4. Reserve Period: The designated duration for which TikTok Shop holds the reserve amount. After this period, any unutilized reserve amount may be refunded to the seller.
5. Reserve Levels: These indicate the reserve percentage and the corresponding reserve period.
6. Reserve Criteria: These are the rules that determine the reserve levels for each seller.

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Reserve Fund Levels

Following the new policy, seller accounts will be categorized into four levels based on metrics like Logistics Delayed Fulfillment Rate (LDR) and Seller Fault Cancellation Rate (SFCR). These levels range from 0 to 3, with varying repayment periods for each level.

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Policy Impact

1. Financial Liquidity: Sellers, particularly those at Level 0, will face changes in their repayment cycle, which could significantly impact their financial liquidity.
2. Operational Strategy Adjustment: Sellers may need to revise their operational strategies, such as optimizing logistics and reducing cancellation rates, to lower their reserve fund level and shorten the repayment period.
3. Compliance Importance: The regulations underscore the need for sellers to ensure their business complies with platform standards to avoid frozen funds due to unresolved disputes or refund requests.
4. Continuous Evaluation and Optimization: Regular assessment and optimization of operational data are crucial for sellers to advance to higher reserve fund levels, thus alleviating financial pressure and expediting fund repayments.

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In summary, TikTok Shop’s recent update to its rolling reserve funds regulations aims to enhance platform compliance and reduce order cancellations. These changes present new opportunities for operational growth among sellers. It is essential for sellers to actively manage their operational data, improve management strategies, and adapt to the new withholding and repayment timelines as per the revised regulations. Such proactive measures are key to maintaining smooth operations and financial resilience.