Authorization and capture for credit card processing aren’t the same. They are often thought to be the same because they work hand in hand for the process to be complete. In reality, they are two different procedures and both have to be completed for a credit card transaction to be approved and completed.

Authorization and Capture, What do they Mean?

Understanding the meaning of authorization and capture can help you see how they are different. It can also help you see how they work together to complete the transaction. When authorization is conducted, the verification process is determining enough funds are available for the proposed transaction.

For example, when you check into a hotel they ask you for a card to have on file. If you charge anything to the room or there are damages, they can bill your card for that amount. Typically, there is a set amount on hold for that period of time. It is removed from your available credit. Once you checkout and everything is settled, that available credit not used is accessible again to the cardholder.

Getting fuel at the pump instead of paying inside is convenient. Most credit cards also authorize in this manner when you pay at the pump. The amount they authorize is going to be different than what you actually put in your vehicle. For example, they may hold $100 and you put in $40 in fuel. Once that transaction is completed, the remaining $60 they authorized and put a hold on is then accessible to the cardholder for use.

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The capture process if all of this occurs when the funds are pulled from the card to pay for the purchase. For the hotel example, the total charge may be $400 for 3 nights with an additional $100 per night for incidentals. With nothing extra charged to the room, the capture amount is $400 when you check out. The same type of scenario is explained above with the fuel authorization.

The policies of the business need to clearly state what will be held with an authorization. The terms should be written so they are easy to understand. This prevents confusion of customers and problems when they attempt to pay. It also reduces the risk of them calling their card issuer to complain they have been overcharged by a merchant. They need to understand the available credit is reserved for the possible transaction they made.

Authorization Only

The type of business you offer will determine if you authorize only or also have funds on hold. This is the standard procedure for most purchases someone makes with a credit card. For example, buying groceries or paying for a meal at a restaurant. There is only one possible charge for the customer and it is paid with nothing further to consider.

When this is conducted, it is verified the customer is in good standing and the card is valid for use. It verifies there is sufficient funding for the amount of the transaction. If there will be a hold on the account for the purchase the authorization approval by the card issuer has to include both the purchase price and the amount to be held. If there isn’t enough funding it won’t be approved. The customer won’t be able to secure that purchase or they will need to use a different card with more available credit.

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Authorize and Capture

If your business is set up for authorize and capture to take place, it is more complex. Make sure your system is set up to do this correctly. It is important to your customers so funds aren’t authorized and held that shouldn’t be. The system needs to automatically return the funds authorized and held but not captured to the customer timely. This ensures they can once again use that available credit if they so desire.

The terms of the agreement must be fully disclosed to your customers. Otherwise, they may be upset and mad about the hold authorized on their credit card. It can make it hard to be on vacation too when a customer plans to use that card and didn’t realize until they checked in to the hotel that some of their available credit will no longer be accessible to them.

This process involves the above authorization but takes it one step further. It involves the card issuer actually approving for the funds to be taken from the cardholder’s available credit and dispersed to the merchant. When there is a hold involved for the type of purchase, none of the money is released right away.

It isn’t until the transaction is done that the amount to be given to the merchant is determined. That timeframe can depend on the type of transaction. For the fuel pump example, the extra held typically drops off within a few business days. For a hotel stay, it will be several days after the stay at the hotel ends. Some travelers stay for one night and others stay for a week. That timeframe will influence when the held funds are once again available to the cardholder.

During this time, the transaction shows up as pending. It shows the cardholder how much is being held on reserve for a particular merchant. The bookkeeping process for your business can be more complex withhold types of purchases but you should only record money that is actually paid by the customer, not the amounts on hold. This is because of the amounts not allocated for the purchase and then accessible again to the customer. Such amounts are never given to the merchant by the card issuer.

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Merchant Account

As a business owner, your needs for authorization and capture only or a hold on accounts depend on what you offer for goods or services. Your merchant account provider should provide you with a detailed system and the right equipment to conduct such transactions efficiently and correctly. Make sure your business model needs are known and you find a merchant account provider that can meet them. Verify what they offer and the best options available to you before you apply for any merchant account.

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