Last Updated on April 28, 2023 by Ryleigh Stangness
A credit card authorization is a general term, meaning that a transaction was processed through a credit card network (such as a Visa, Mastercard or American Express).
These "authorizations" can be a number of request types depending on the need of the merchant. Let's take a look at pre-authorizations, purchases, and captures and how they compare when it comes to credit card processing.
Also referred to as a "pre-auth" or "auth-only", a pre-authorization places a hold on the customer's credit card for the desired amount. The credit card is verified, and the merchant is provided with an "Approval Code" for later use. These funds are now frozen on the credit card but have yet to be charged to the customer. The customer should not see the transaction appear, but will see their "available balance" drop by the pre-authorization amount.
The merchant is guaranteed those funds for up to 7 days but must process a "capture" in order to actually collect them. The original approval code can be used for up to 30 days, but it is possible for the funds to no longer be available after 7 days as the freeze will have expired.
Sometimes referred to as a "force", a capture is the second step of the pre-authorization process. The merchant, using the original Approval Code from the pre-auth, is telling the card-network that the customer should now be billed. The merchant can choose to have the final capture amount be less or more than the original pre-auth amount. If more, it is possible that the capture will be declined as only the pre-authorization amount was guaranteed. If the capture is for less than the original pre-auth, the remaining funds are automatically made available to the customer.
Also referred to as "sale" or "auth+capture", a purchase is the most common payment request type. It can be seen as a pre-authorization and capture combined into a single transaction. The merchant simply enters the desired amount, and the customer's card is charged. There is no need to do a pre-authorization, nor is there a need to capture the transaction afterward.
Real World Example — Gas Station
Filling up your car at a gas station is a good real-world example of these transactions in action. The gas pump will usually do a pre-auth on your credit card for $100, and then let you start filling up your vehicle. Once full, the gas pump will capture the transaction for the final amount, such as $67, which automatically releases the remaining $33 back on your card.
When looking at your credit card statement, you should see a single charge for $67, not $100. However, if you were to go inside and pay at the counter, the gas station attendant would do a credit card purchase for $67, without the need for a pre-auth or capture. Still not sure which transaction type is the right one for you?
What Does It Mean for Funds to be Frozen or Reserved?
In a credit card example, every cardholder has a credit limit (e.g. $1000). When a pre-authorization is made for say, $100, although that amount has not been debited from the cardholder, it remains "on hold" therefore reducing the customer's credit limit to $900 until the transaction has been finalized, or "posted".
In the past, pre-authorizations used to expire after 30 days, but over time, Visa and other card brands have moved that timeline to just 7 days.
How Do Pre-Authorizations Affect Merchants?
Once a pre-auth expires, the funds do not automatically become available to the cardholder. The merchant is responsible for actively "reversing" the pre-auth in order to release the funds back to their customer. If a merchant is not active in performing this task, Visa will levy fees against the merchant.
To automate this process for merchants, Helcim's payment gateway has been programmed to auto-reverse pre-authorizations that are still sitting in reserve after 7 days. This way, you and your customers can rest assured that their pre-authorized transactions are being taken care of and you can be confident you're adhering to the card brand rules.
Need to Accept Credit and Debit Cards?
If your business needs to accept credit cards in person or online, Helcim provides honest, transparent, and affordable credit card processing that stands out in an industry known for shady business practices and customer exploitation. Our Interchange Plus pricing is widely regarded as the most honest and affordable billing method in the industry and our customer service is consistently lauded as a step above.