While there are best practices across the industry, what we’ve learned is that the Banks define the rules and they are often favorable to the Banks. Below are four tricky situations to consider.
Credit Card Authorizations: The Basics
Understanding how Credit Card (CC) Authorizations work and behave with you ERP system is complicated. It’s important to understand that there will be three entities dictating how CC Authorizations are handled. They are your ERP system, your CC Processing Merchant (Merchant) and your customer’s CC issuing bank (Bank). There are variety of settings and options that are available within your ERP system and the Merchant but ultimately it’s the customer’s Bank that defines the rules for how Authorizations are handled.
While there are best practices across the CC banking industry, these rules will vary from Bank to Bank and neither the ERP system nor Merchant will have visibility to these rules. So we’ve outline some scenarios and notes for you to consider:
Scenario 1: Customer Order Cancellations/Changes (ie. Web Store like Amazon)
If the customer chooses to cancel a portion or full value for an order, the ERP system and Merchant can process a void for the any unused Authorization value. But the customer’s Bank dictates when the Voided Authorization value is released from the customer’s CC. The Bank can take several days or weeks to release the unused Voided value.
In some cases, customers can work directly with the Bank to manually release the voided Authorization value. To do so, the customers typically would need a receipt of the transaction that shows the original approval code, the amount of the Authorization, and an indication that it was Voided.
Scenario 2: Authorization amount is greater than the final sale value. (ie. gas stations, hotels and restaurants)
Some merchant types are permitted to estimate the Authorization value (ie. gas stations typically set their estimated Authorization value to $75). If the sale is less than the Authorization, the remaining Authorization value may not be released immediately by the customer’s Bank. The only case where the remaining unused Authorization value would be released the same day is when a PIN is used.
Scenario 3: Multiple Shipments are processed for a single order (ie. online clothing merchant)
Some ERP systems and Merchants like Sage500 and Sage Payment Solutions will release the original Authorization once the first shipment value is captured/settled then process a new Authorization for the remaining order value to be shipped. This is done using the same information provided with the original Authorization. This approach will be repeated as subsequent shipments are processed (ie. capture shipment value will release any existing Authorization and process a new Authorization for the remaining order value to be shipped).
So within the ERP system and the Merchant, the only active Authorization would be the value remaining on the order to be shipped. Customers may find this type of activity on their card confusing as their Bank is dictating the handling of the captured/settled values, release of the original Authorization, posting of new Authorizations and how all these transactions display to the customer.
To ensure that information is flowing in a timely fashion to the Bank, it is recommended that any remaining authorization value that will not be used (ie. no more shipments will be processed against the original order) be set to ‘Void’ in the ERP system and with the Merchant. Voiding the remaining Authorization value in the ERP system and with the Merchant will notify the customer’s Bank that the value should be released on the customer’s card. However, the amount of time it takes to release the value is dictated by the Bank and not the ERP system or Merchant. In some cases it can take up to 30 days for the Bank to release the value.
Scenario 4: Expired Transactions are handled differently than Voids
An expired transaction is a transaction that was not settled within 7 calendar days of the Authorization. When the transaction expires, it is not Voided. The Authorization is still valid for 30 days and the ERP system and Merchant can still process the sale transaction ('Force'). However most Merchants charge a higher processing fee for these types of transactions as the funds may not be held with the issuing Bank.
Need help making sense of your credit card transactions?
We can help. Just click below to get in touch.
