How Credit Card Charges Are Processed

It's a fact that businesses offering credit cards as a payment option are more likely to have higher revenues than businesses that don't.  So, if you're a business owner and you are thinking of jumping on this bandwagon to higher profits, understanding the process before you make any decisions would be beneficial.  Knowing just how your customer's charges go from point A, your store or business, to point B, your bank account can give you tips as to what to look for in a processing company.

The Process

This process is basically a series of steps:  initiating, authorizing, completing the transaction, and lastly, receiving your funds.  Let's start at the beginning.

The process begins when you accept the credit card from the consumer.  The next step is to verify that the card is active and the amount of the purchase is within the cardholder's available credit limit.  How that verification is done depends upon the equipment that is available to you, and how you interact with your customer.

If you own a business in which the customer can present you with the actual card, like stores and restaurants, then you can physically take the card and swipe it through your card terminal.  If you own a business that is online, your customer enters their own information into your form. Mail order and call center-based businesses usually have computer-based terminals for entering charge card data.

The second step is authorization.  The key for reducing any problems during the initial phase is to make sure you are using technology that allows for real-time authorizations.  This software will immediately send the card number and amount to the card processor and the processor immediately approves or denies the sale. This is critical for cutting back on charge-backs and card errors.

Third, you will need to complete the transaction.  At the end of the business day, any credit card charges will need to be processed.  This procedure is called batching and can be done either by hand or on your credit card terminal.  Once this is done, the credit card processor will send each credit card company represented in the batch the transaction that took place.  Once this is done, each credit card company will debit the cardholder's account.  This ends this part of the transaction and all that is left is for the monies to be transferred into your account.  This usually takes place pretty quickly, often within two to four business days.

Safety Issues

Since the process can take a few days to complete, knowing that your money is safe and will actually be credited to your account is a key concern.  Many credit card processing companies have protection policies in place that will absolve you of any responsibility should you be a victim of credit card fraud as long as you followed their authorization procedures 100%.  Before you decide on which processing company to go with, check out their safety policies, particularly if you are an Internet company.  You will want as much protection as you can get.