Etsy has said it is “substantially decreasing” the amount of sellers’ funds held in reserve globally after UK vendors began boycotting the online craft marketplace over a hold-up in payments.

Sellers have been putting their Etsy shops in “holiday mode” and switching to rivals including Folksy, Shopify and Facebook Marketplace after the US-based website began ramping up its reserve system from the end of May by holding back as much as 75% of their takings for at least 45 days.

Etsy’s fees, which include a sales commission and advertising costs, are taken out of the remaining 25%, leaving many small businesses with little cashflow to pay themselves or suppliers.

Sellers say they have found it almost impossible to find out why their funds had been placed on reserve, with inquiries answered by bots giving stock answers that often did not apply to their case.

On Wednesday, the government’s small business minister Kevin Hollinrake expressed concerns in a letter to Etsy that asked how the marketplace would address sellers complaints.

In a blogpost on Etsy’s community site, Chirag Patel, the head of payments and risk at the site, said it was reducing the amount held in reserve globally and making the reserve scheme “more dynamic” as it recognised “it may have led to disruptions in how some sellers manage their day-to-day operations”.

Patel said Etsy would also be addressing other “pain points”, including improving communications to sellers who had newly had payments held in reserve to “help them understand our logic and how to get their funds released earlier”.

The group said it would also adjust its systems to take into account “issues that are beyond sellers’ control” that might lead to them being placed on reserve – for example, a lack of tracking on shipments, which has been cited in many cases. It said it recognised “there are limited options for low-cost, tracked shipping services in the UK and other markets”.

“We know you depend on us to not only bring you sales, but also to ensure you get paid in a timely manner,” Patel said, promising to “refine the criteria and processes we use to identify when and where reserves are most appropriate” in the long term.

The vast majority of sellers with a reserve will see the percentage of funds held cut by at least half. Etsy said that, based on the sellers who currently have a reserve on their account, the most common level of reserve is now expected to be 30%.

Dozens of sellers said they had been released from the reserve system overnight after a slew of media coverage, including from the Guardian.

However, many were highly sceptical they would see long-term change, suggesting Etsy had made the adjustment before releasing quarterly trading figures on Wednesday night. A number said they had now closed their Etsy stores for good.

One seller wrote on the Etsy Reserve Strike Facebook page: “My trust is broken. I have a Folksy shop I don’t use so I’m off there. I also use eBay and [Facebook] Marketplace.”

Another suggested Etsy was “back pedalling because of the backlash in the UK” but added: “They’ve lost my business as a customer.”

Daniel Vass, who sells handmade furniture on Etsy under the name Cutting Edge Creations and has been heavily involved in protests against the reserve measures, said Etsy was still holding about £6,000 of his income back and had been given no firm reason for the delay despite exchanging dozens of messages with the group’s help system. He said that from a £250 order he could get just over £5 straight away.

Vass said he was turning down orders as he was struggling to pay for supplies and would be forced to close his business if Etsy did not release the cash shortly. He said switching to rival sites at short notice was not an option. “I can’t sustain things any more. Those other sites won’t save me as it would take too long to build the business up [there],” he said.

Etsy says that on average, funds held on reserve from most orders became available within two weeks of the order date, and fewer than 2% of active sellers had a reserve on their account at present. It says that for 70% of those sellers the funds on hold were worth less than $50 (£39).

However, sellers said this meant about 140,000 sellers could have been affected worldwide, with the system putting about $7m of cash on hold in Etsy’s account.

Liz Barclay, the UK’s small business commissioner who has raised the issue with Etsy after a surge in complaints, said: “We were promised by Etsy two weeks ago that we’d have a direct route to which to refer sellers who come to us for help.

“We’re still waiting while they make these promised communication improvements and while we wait, our talented and crucial small and micro businesses are going to the wall.”