How to Authorize a Credit Card for Future Use

You may have heard the term “authorize a credit card” thrown around, but you may not know exactly what it means. You also may have heard of an “authorization hold”, which is another way to describe the same action. When you authorize a credit card, you are not exactly charging the credit card at that moment. What you are doing is making sure the card is valid and able to be charged when you, as the merchant, are ready to send the payment through.  This is not a charge at this point, only that you have the “OK” to charge when ready. This can be done with both debit and credit cards.

In the case of debit cards, if the payment is not made within 1-5 days, the authorization will fall off and you will have to re-authorize the transaction. With credit cards, they can stay on for about 30 days. When you have a transaction that is signature based, such as normal credit card transactions, in order to authorize a credit card, you must go through a two step process.

When a credit card is swiped by a merchant, the information is sent to the merchant’s credit card payment processor. The processor will verify that the account is active and valid, as well as verify that there is enough money in the account to cover the purchase. This is where you authorize the credit card. From the customer’s point of view, in most cases the transaction amount is removed from their statement and they don’t know the difference, unless you, as the merchant, do not take the money. From the merchant’s point of view, the money is not in their account, but they have given a good or service away. The merchant has to send a batch transfer before the monies will be deposited into the merchant account.  How often you send a batch transfer is up to you, as the merchant. Some do it daily, others weekly or even monthly, depending on how many transactions they do.

If for any reason, within 1-3 days, the merchant needs to cancel the authorization, you can reverse authorize a credit card, but you will have to go through an acquirer that offers this feature. If you expect this to happen, or just want to be on the safe side, you should check with your processor to see if you have this benefit on your account. Some reasons this may be necessary is due to a double hold, a voided transaction or human error entering the wrong amount of the purchase.  Though these are things that shouldn’t happen every day, they can happen occasionally and should be kept in the back of your mind.

When you authorize a credit card, it is simply just a way to ensure your money is safe and to make sure the customer pays for their transaction. Since it is done almost exclusively through electronic means, there is not much for you, as the merchant, to worry about except putting your batch through. If you do that, you will get paid