Business owners have a lot to keep track of, from sales to customer service to operations and beyond. Your credit card transactions are no exception – there are fraud concerns, customer satisfaction issues, and processing costs to worry about. Did you know there’s one simple way to improve all of those things? Understanding and using credit card pre-authorizations to your advantage just might be the best business move you’ve made all year. Here’s why you should get set up today.
What is a Pre-Authorization?
Let’s start with the basics – what is a pre-authorization? Much like any other credit card charge, a pre-authorization places a hold on a certain amount of funds on a customer’s card. Unlike a normal transaction, however, instead of immediately capturing funds from the card, the hold simply extends for about 5 days. The actual length of time for the hold depends on several factors, including the type of business you run. Contact your credit card partner for more details. As with any authorization-capture sequence, the business must capture the funds by the end of the hold period or the money will be released.
Let’s talk now about why pre-authorizations can save you money and hassle.
Lower Processing Costs
There are several ways that making smart use of credit card pre-authorizations can save you money on your monthly processing fees. First, using pre-authorizations can reduce the incidence of refunds, for which some processors charge a fee. Adding a few extra days to the process to iron out details with the customer reduces the chance of a misunderstanding that could lead to a refund. On a related note, many refunds occur during busy times of the year or when a new product is launched because businesses take more orders than their inventory can support. A pre-authorization ensures the customer can’t spend that money elsewhere while you double-check to make sure the product is actually on your shelves. Finally, depending on your arrangement with your credit card processor, you may be able to save money by avoiding MDR fees. For example, Visa and MasterCard do not charge interchange fees until the capture is issued and money is actually removed from the customer’s account. Making doubly and triply sure you actually want to capture the funds can save you a bundle!
We all know that credit card fraud is a serious issue that affects card present and online sales alike. Pre-authorizations are an excellent way to reduce the risk of those fraudulent transactions turning into chargebacks. If the funds are still in the holding state (in other words, they haven’t yet been captured), customers can’t dispute the charges. You’ll buy yourself (and the customer) extra time to make sure the transaction is legitimate.
The most important metric every business should be tracking is customer satisfaction. Pre-authorizations provide an extra layer of confidence that the transaction was intentional and that the customer is happy with what they bought. Additionally, no one likes to make a purchase just to find the item isn’t actually in-stock. A pre-authorization lessens the blow because there’s no need to go through all the hassles refunds can sometimes bring. Not actually charging a customer’s card until their order ships will go a long way toward building goodwill and repeat business.
I’m Sold – How Do I Start?
The process for using pre-authorizations varies from processor to processor, so talk to your payment partner about getting started. Better yet, get in touch with us! We’d be more than happy to walk you through our process. Give us a call at 1-855-360-0360 or drop us a line on our website. We can’t wait to hear from you!
PS – We broke the credit card process down into a few easy steps – check it out.
PPS – Not accepting credit cards yet? What are you waiting for?