The BBC spoke to more than 20 sellers who had similar complaints. One, a disabled seller for whom Etsy is her only source of income, said the company stated it was taking "no complaints" on the issue. Etsy told her it "isn't able to give... [a] specific reason" for withholding thousands of pounds of her takings.
Many sellers wished to remain anonymous for fear of having their shops taken off the platform. The BBC has seen complaints about the reserve system from the US and various countries in the EU.
"If you challenge them or speak out, or don't accept their terms and conditions, your account becomes disabled," one independent UK seller told us.
Etsy disputes this and says that it wouldn't retaliate against a seller for voicing their opinion. It says it takes seller feedback very seriously.
Hundreds of affected Etsy sellers are planning a "strike", or boycott and are organising on various online groups.
An Etsy spokesperson said that the vast majority of sellers receive their funds when they make a sale. They added that the reserve system was used by many online sellers.
However, Amazon's level of reserve is much lower, at around 3% for established sellers until any disputes are resolved. , external
The Small Business Commissioner, Liz Barclay, said Etsy's "level of reserve is new to us".
She added that while she had no remit across complaints made against non-UK companies, "there have been more complaints recently" made against the US-based firm.
Ms Barclay said the commission was receiving reports of "many small firms owed several thousands of pounds", which was "heart breaking at a time when people are struggling with the rising cost of living on top of huge increases in costs of business bills and materials".
"My big worry is that for hundreds of thousands of businesses, this is their only source of income. Anecdotally, we hear that many sellers are women or minority groups and they need this money to pay the bills," Ms Barclay said
Martyn James, an online retail expert, said that while it made sense to not release money until the buyer had received an item, "the business should not be sitting on money for any longer as an anti-fraud measure".
He said he was "deeply concerned" at Etsy withholding sellers' money like this, and said it was an example of how online sites could "slip through the cracks of regulation".
Tina McKenzie, policy chair at the Federation of Small Businesses, said that sites should offer sellers stability and transparency when it comes to dealing with their funds.
She added that online sites dealing with small businesses "hold a lot of power over the sellers" and should therefore "use their power responsibly".
"People's livelihoods are at stake in many cases," Ms McKenzie said.
Etsy said it would "continue to improve upon our programs, including payment reserves".
The BBC understands that a representative of Etsy has met with UK government officials.