How Are Credit Card Charges Processed?

Businesses that offer credit cards as a payment option are more likely to have higher revenues than businesses that don't. If you're a business owner who's considering this as a way to achieve higher profits, you need to first understand the process.

How do your customer's charges go from point A (your store or business), to point B (your business bank account)?

The Process

This process is basically a series of sequential steps:

(1) Initiating,

(2) Authorizing,

(3) Completing The Transaction,

(4) And lastly, receiving your funds.

Initiating

The process begins when you accept the card from the consumer. Next you verify that the card is active and the purchase amount is within the cardholder's available credit limit. How the charge is verified depends upon the equipment you're using, and how you interact with your customer.

If you own a business in which the customer can present you with the actual credit card, like stores and restaurants, then you can physically take the card and swipe it through the card terminal. If you own an on-line business, the customer enters his or her own information in to your form. Mail order and call-center based businesses usually have computer-based terminals for entering charge card data.

Authorization

The second step is authorization. To reduce problems during the initial phase, make sure you are using technology that allows for real-time authorizations. This software immediately sends the card number and amount to the card processor and the processor immediately approves or denies the sale. This is critical for cutting down on charge-backs and card errors.

Receiving The Money

Next, you will need to complete the transaction. At the end of the business day, credit card charges all need to be processed. This procedure is called batching. It can be done either by hand or on your credit card terminal. Once completed, the credit card processor sends each credit card company represented in the batch, the transactions that took place.

Each credit card company will then debit the cardholder's account. All that remains is for the monies to be transferred into your account. This usually takes place pretty quickly, usually within 2 to 4 business days.

Safety Issues

Since the process takes some time to complete, wondering if your money is safe and will actually be credited to your account can cause some anxiety. Many credit card processing companies have established protection policies. As long as you've followed their authorization procedures 100%, you are absolved of any responsibility if you become a victim of credit card fraud. Check out the company's safety policies before you decide whether to go with a particular processing company. This is exceptionally important if you are an Internet company. In any case, you will want as much protection as you can get.

Before you make any decisions or take any action, check with your bank. You bank can give you tips on how to integrate a credit card payment option into your business and what to look for in a processing company.