Etsy, the global online marketplace used by millions, is facing claims from sellers it has been withholding thousands of pounds from small businesses by imposing reserves on accounts that take 75% of sellers’ income for 45 days with no warning.

Sellers say the company is retaining their income with little care for how it will affect families in a cost of living crisis.

Pietra (her surname is not used for fear Etsy will shut her account), a Miami-based Etsy seller, told Sky News she has more than $20,000 (£15,463) held in two of her accounts in an enforced reserve that she is unable to access.

Since 2015 she has designed wedding favours to sell on the platform full-time, balancing work with being a single mum.

Her business was taking in more than $30,000 (£23,195) per month in orders. From that total, once production and shipping costs are removed, she is left with $8,000 (£6,185) profit.

But after a reserve was placed on her account on May 18, she saw her income drop to just $444 (£343) in June.

“It’s insane that in a two-month period my whole life went to hell because of this,” she said. “They’re holding $20,000 (£15,000) of mine, and I basically can’t buy food.

“I’ve just reached two months of my rent being late and I’ve maxed out two credit cards, one for $5,000 (£3,800) the other for $6,000 (£4,600). It’s been close to impossible to get out of bed.”

‘We haven’t been able to pay bills’

Dan Vass, from Aylesbury in Buckinghamshire, runs a furniture business through Etsy which was going from strength to strength until a reserve was imposed on his account on June 14 without any warning.

“We currently have over £5,000 in reserve and it just seems to keep growing. We haven’t been able to pay bills and this is our only source of income.

“There have been times this month when we literally do not know how we can keep the business going and our family fed because the items take a long time to make, have high material costs and Etsy are holding all of our funds, so we can’t actually begin to make them when orders come in.”

‘I’ve had to retrain’

Anthony Whitworth, from Tadcaster in North Yorkshire, owns Etsy shop The Bizzy Box and is ranked in the UK’s top three Etsy sellers.

He’s been running a thriving business for seven years through the online marketplace which has enabled him to make a good living whilst supporting his wife who has Multiple Sclerosis.

His business pays Etsy over £35,000 in fees per year and has a 5-star rating from more than 63,500 sales, but since May his account has been put into reserve swallowing his income.

“I’ve had to retrain as a locksmith just to make enough money to keep things ticking over since May and in case Etsy goes seriously downhill in the long run.”

‘Quite shocking’

The Small Business Commissioner Liz Barclay told Sky News that over the past few months she has received a rising number of complaints from small business owners that online platforms are holding their money in reserves for a longer period of time than they previously did.

“Up until now, we have been hearing of online platforms withholding smaller amounts of money. This is the first time I’ve heard 75% being withheld in reserves and that is quite shocking.”

“These small suppliers are the lifeblood and the talent that drives your business success. They need to be paid as quickly as possible or they may go to the wall.”

Ms Barclay said the government has no jurisdiction over online selling platforms such as Etsy, which are not UK companies.

She said the government is reviewing the tools it has to help small businesses get paid faster with a report expected to be published in Autumn.

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An Etsy spokesperson said: “Etsy Purchase Protection is designed to protect both buyers and sellers as Etsy covers the cost of refunds for all eligible orders; since launching last year, we have received positive feedback around this program.

“And while we understand that payment reserves can cause short-term disruptions to a seller’s payment schedule, these temporary holds are common practice across marketplaces.”

‘I’m worried I’ll lose lots of sales’

Sky News understands Etsy began using payment reserves in 2021.

Reserves are not uncommon amongst seller platforms.

Sellers who have been on Amazon for over a year and have processed at least 100 orders will have 3% of their daily payments held in a reserve for the purpose of covering transaction disputes.

In comparison, Etsy sellers have shown evidence to Sky News that whilst in a “reserve”, 75% of the amount they receive from orders is unavailable to them for 45 days or until they have provided tracking proof.

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This means the money needed to pay for the product and ship it out is not received until after it is made and shipped.

A lot of sellers don’t want to force their customers to pay for tracked shipping because international tracking can rack up a huge cost.

Steen Ross, from Norwich, has £1,800 held in a reserve on her Etsy account.

She has sold custom costumes to a largely American customer base on Etsy for a decade and relies on her Etsy income to pay rent.

“Most of my sales go to America and about 90% of people don’t want to pay the additional cost of tracking because it’s so expensive, they are happy for me to just provide proof of postage.

“I’m worried that if I raise prices to include tracking, I’ll lose a lot of sales, but if I don’t Etsy won’t release funds from my reserve before 45 days.”

Etsy’s purchase protection programme

In June 2022, Etsy introduced a new “purchase protection programme” which enables a customer to easily apply for a refund if they claim their item is lost or stolen.

Since then, Pietra, Steen Ross and Dan Vass claim they have experienced no-challenge refunds, where funds appear to automatically leave their reserve when a claim is made.

These complaints have been echoed by hundreds of people online tweeting Etsy’s CEO John Silverman and a Facebook group ‘Etsy Reserve Strike’ has been set up in the last month to organise a strike amongst sellers.

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Etsy has almost 90 million buyers worldwide and about 6 million sellers but last year, for the first time since 2012, Etsy experienced a fall in its number of users and sellers.

Mr Silverman has dropped $24.4m (£18.7m) of his shares in the company since the beginning of February.

As of 10 July, Etsy’s share price sat at $85.83 (£65.56) compared to the all-time high share price of $297 in 2021.

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