Transaction Center & VPOS Support

Authorizations vs. Settlements

There are two parts to every credit card transaction, an authorization and a settlement. Both operations must be done in order to successfully charge a credit card.


An authorization is the card issuing bank's approval or denial of a request to run a transaction on a credit card. Generally, the card issuing bank will issue an authorization if the following criteria are met:

Criteria for Authorization:

  • Is the card number valid? YES
  • Is the expiration date submitted valid? YES
  • Has the card been reported as lost or stolen? NO
  • Is there enough available credit on the card? YES

If the above criteria are met, the card issuing bank will send an authorization response of APPROVED, along with a 6-digit approval code and AVS and CVV2 response codes. At this point, the charge has been authorized and the sale amount is placed against the available credit on the credit card. The amount has not yet been removed from the actual card balance.


Once a payment has been authorized by the card issuing bank, the merchant must approve the transaction for settlement. Until the payment is settled, the charge amount has not been removed from the actual card balance. After a settlement is performed, the bank processor will deposit the funds into the merchant's bank account, normally within 2-3 business days.

Expired Authorizations

Depending on the card issuing bank, an authorization will stay on a card for a period of between 3-30 days. After the authorization expires, the funds being held against the card's available balance will be returned to the card, and the customer is free to spend that available balance on another purchase. It is therefore possible that if you wait too long to settle an authorized transaction that the funds will not be available and the settlement will fail. It is for this reason that authorizations older than 30 days are not available for settlement within your transaction center and must be re-authorized.

Authorization Only vs. Authorize and Settle

By default, all accounts are set to request an authorization only when submitting transaction information to the bank processor; all transactions must be settled/batched via a manual process. A merchant may request to have his/her transactions submitted as sales, whereby an approved authorization will be automatically placed into the night's batch file.

Pros and Cons of Authorize and Settle

By changing your default authorization type to Authorize and Settle, all approved transactions will automatically be placed into the batch file for that evening, eliminating the need to perform a batch settlement each night. However, there are some limitations and dangers to using this transaction type.

  • You will not have the chance to review your transactions before they are settled. Therefore, there is a higher potential for settling a fraudulent credit card charge, resulting in a chargeback. We strongly recommend that you utilize the AVS and CVV2 filters to protect you from potentially fraudulent transactions.
  • You will not be able to settle a transaction for less than the amount authorized. You must wait until the batch closed between 1-3 AM Eastern time and issue a partial credit. Bank processors assess a discount rate fee regardless of whether the operation is a settlement or a credit, so you will pay twice for the transaction - once for settling the whole amount, and again for the amount you credit back to the customer. You could void the transaction and then re-authorize the card for the correct amount, but this will result in two outstanding authorizations on the customer's card, affecting the card holder's available balance.

Article written by Bill W.