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.
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.
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.