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Everything you need to know about authorization-only transactions

August 28 2017 | By Helen Baginska

Many businesses use authorization only (auth only) as a way to ensure that funds are available, especially if they are not charging for the product or service on the same day. There are many industries that use auth only transactions, including the most commonly known, hotel and car rental companies.

Imagine owning a bridal boutique, where you sell custom made wedding gowns. Each dress is unique and requires a lot of work. You need to buy specific fabrics and accessories and invest a lot of time into creating each piece. If you don’t take a deposit, you are taking a lot of risk. In this example, getting a deposit pre-authorized is a smart move. First and foremost, it gives you a level of assurance regarding your customer’s ability to pay, and secondly, it ensures commitment from both parties.

Let’s see how auth only transactions work:

  • An auth only involves verification of a cardholder’s account, to determine if funds are available for the intended purchase.
  • An auth only places a hold on a specified amount, until the transaction is completed or the hold time expires.
  • An auth only can be left open when a batch is closed and be completed in another batch or on another day.
  • An auth only transaction can’t be “forced” or “offlined” for more than the original pre-authorized amount. It can be completed for a lesser amount though.
  • An auth only temporarily decreases the customer’s available credit limit, as some of the funds are held until the transaction is completed or the hold expires.
  • An auth only expires within 7 to 30 days after being processed, if it’s not completed. This depends on the card brand type. Visa usually gives 30 days for an authorization to expire and MasterCard typically gives 7.

When the order is ready to be paid for, you need to “force” or “offline” the sale using a six digit approval/authorization code on the original auth only transaction receipt. If you process a sale instead of forcing an existing auth only, the customer would end up with the sale amount charged to their credit card and an additional amount remaining on hold (until the auth only expires). The additional amount held for no reason can make some customers quite unhappy, so it’s best to follow the correct process when working with pre-auth transactions. This way there will be no additional hold on the customer’s account.

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