Currently,
Once an account in On Hold, you can't enter new transactions, invoices or sales orders for that customer.
However you can still process existing transactions, invoices and sales orders, although you will see a warning to say the account is On Hold.
I spoke to a customer today who felt that this was a little dangerous, as users can click through warning to despatch the orders. Would like the ability to stop orders from being despatched when customer is on hold (without amending user permissions etc).