Pre-Authorization Charges: What are they?

Preauthorization charges play a crucial role in securing high-dollar transactions for merchants, facilitating smooth credit card processing. In situations where the final transaction amount is uncertain at the time of sale or when a merchant seeks assurance regarding a customer's financial capability, a preauthorization charge becomes instrumental.

Understanding Preauthorization Payments

A preauthorization charge allows a merchant to estimate the final cost of a product or service and request the customer's bank or card issuer to place a temporary hold on that amount in their account. Typically lasting seven days or less, this hold ensures the availability of funds for the transaction.

How Does a Preauthorization Charge Work?

While all credit card transactions involve authorization, capturing, and settling the transaction are separate steps. Although these processes seem immediate to consumers, the backend settlement takes 24-48 hours. In cases where the final amount is unknown, the card networks and issuing banks collaborate to verify fund availability, placing an authorization hold to secure the funds until the transaction is finalized.

Businesses that Benefit from Preauthorizing Credit Cards

Preauthorization charges serve as a protective measure for merchants, particularly in industries with high-value items, extended shipment periods, or products deemed high-risk. Additionally, businesses aiming to mitigate chargebacks find preauthorization beneficial.

1. Hotel Incidentals - Credit Card Processing for Hotels : Hotels commonly use preauthorization charges for incidental expenses, covering anything from mini-bar purchases to unexpected room service cleanup costs. This proactive step protects against potential losses, ensuring a smooth credit card processing experience for the merchant.

2.Rental Car Agencies - Merchant Processing for Car Rentals : Rental car companies employ authorization holds to cover expenses such as gas refills and potential damages, safeguarding against significant risks associated with car rentals. This approach contributes to efficient merchant processing, particularly in the high-risk sector.

3.Gas Stations - Credit Card Payment Gateway for Gas Stations : Gas stations utilize preauthorization holds to ensure customers have adequate funds to cover their gas purchases, helping mitigate potential losses. By implementing this credit card processing strategy, gas stations secure transactions and reduce the risk of chargebacks.

4.Restaurants - Merchant Accounts for Restaurants : Restaurants, especially those offering sit-down services, often employ preauthorization charges to account for tips, providing flexibility in finalizing transaction amounts. This merchant processing strategy helps prevent revenue loss and creates a seamless payment gateway experience for both merchants and customers.