Depositing – How Does it Happen and What Can Go Wrong

As a merchant, one of your primary goals is probably to get paid at the end of the day.  But did you ever wonder how those transactions you process through your terminal end up as funds in your bank account?  Probably not… the logistics behind transaction processing is hardly what would make up good coffee talk.  Nevertheless, a good general understanding of the transaction flow will help, especially if the unthinkable happens… your deposit goes missing.

The first thing you need to know is that credit cards are processed differently from debit cards. We’ll cover the credit cards in this segment and venture over to debit cards next time.

Credit cards can be processed in either an online or offline environment.  In an online environment, an authorization is sent through to the issuing bank once the transaction is processed.  The bank verifies the customer has enough on their card to support the transaction and either approves or declines the transaction.  Once approved, a hold is held on the customer’s card for the amount of the transaction.  The customer cannot access that amount on their card.  The actual funds for the transaction are held in a batch on the merchant’s account at their Acquirer and are not deposited to the bank account until the merchant settles and closes their batches.  But even at the closure of the batch, the actual deposit does not happen right then.  Once the batch is closed and sent for processing, the transactions are sent back the Issuing bank to verify and match up with the holds the were put on each card.  Once all transactions are verified, they are sent through for depositing.  This whole process will typically just a few hours which is why most Acquirers can now offer next day deposits.  But even if your Acquirer can’t offer this service, you should accept no later than a 48 hour deposit… otherwise, your Acquirer is holding onto your funds unnecessarily.

Sometimes, while settling batches, some transactions won’t match up…  these could be duplicates or reversals and these transactions will also be added or deleted from the batch.   This is why your batch can sometimes not balance.  Usually, the difference is the exact amount of one transaction in that batch… so simply identify the transaction and either refund or process it again to even things up.

Offline transactions are basically when the merchant decides not to send through for an authorization and assumes the risk that the transaction will be approved at the time of settlement.  This is obviously not the ideal solution for most merchants however, it does have one main advantage… and that’s the speed of thru put.  Not going out for an authorization greatly increases the speed of a transaction and as such, customers are processed through much quicker.  The only merchants who should really consider this option would be those who anticipate long line up with a relatively low ticket size.  Therefore, even if the transaction is declined for whatever reason, the loss is relatively small.

Knowing how this process works helps if you do lose a batch or a transaction.  It’ll help you articulate the issue to your Acquirer when speaking with their helpdesk and ultimately help you spend less time reconciling and more time on your business.

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Matthew Hunt has been helping small businesses get set-up with Canadian Merchant Account Services since 2007 and helped 1000's do so. Join Matthew on Google+.

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