A pending authorization represents the first step in the process of making a purchase with a credit card. The amount of time that a pending authorization will stay on an account depends on the specifics of the transaction, whether adjustments are required, the processing time of the merchant services company and the policies of the card issuer.
A pending authorization is placed as a hold on an account when a credit card is swiped or keyed in manually, followed by the merchant's request for authorization to charge a specific amount of money. Once the hold is placed, the dollar amount will be logged as a pending transaction and deducted from the available credit remaining in the account. The amount of the pending authorization can be the exact amount for a finalized sale, or an estimated cost if the card is submitted before the purchase is completed.
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If the final purchase price is known at the time the card is submitted, the merchant can request payment when the charges for the day are submitted for processing. This is referred to as capture. When a card is charged before the final amount is known, the merchant can request capture after making adjustments to show the exact amount of the purchase. A pending authorization will stay in place until the merchant requests the capture of funds that are due. The money then is transferred from the card holder's account to the merchant's account.
Exact Dollar Authorizations
An authorization for an exact dollar amount takes place when a merchant keys in the final total for a purchase. Examples of this type of authorization include purchases made at grocery stores and retail establishments. Because these transactions already have been authorized for the final purchase price, they can be submitted for capture automatically each day. Depending on the card issuer, pending authorizations are usually removed from card holders' accounts within 1 to 3 business days.
A preset authorization occurs when a credit card is charged an amount prior to the purchase being finalized to ensure that the merchant will receive full payment. An example of a preset authorization is when gas is purchased at the pump. Because the merchant doesn't know how much gas will be pumped when the card is swiped, an automatic authorization can be preset for an amount that may be many times the actual purchase. Hotels also use preset authorizations to ensure that room service, in-room refreshments and charges to the room are covered. These preset authorizations then are adjusted to the actual amount of the purchase, and a request for capture can be submitted. This process can leave a pending authorization in place for 1 to 7 days.
Tips and Pending Authorizations
When a bill is presented in a restaurant, the credit card authorization will cover the exact price of the food, drinks and taxes, but does not include the tip. Like gas stations and hotels, this requires an extra step to adjust the total amount of the bill to include the tip, and it must be done manually due to tips being written by hand. One factor that determines the length of time that a pending authorization stays on an account is how quickly the finalized bills can be submitted to the merchant services company for capture. Once the final bill with the tip included is submitted, settling the transaction and removing the pending authorization takes 1 to 3 days.
Expiration of Pending Authorizations
Generally speaking, a charge that is authorized but not captured by a merchant will be listed as a pending authorization for a limited amount of time. Examples of this type of occurrence include a restaurant neglecting to adjust charges to include tips, or a gas station that doesn't change a preset authorization to the actual expenditure on a credit card. While the standard practice in the industry is that pending authorizations expire if a transaction isn't captured and settled within 30 days, the required time frame for settlement is set by each credit card issuer. If a pending authorization expires, the merchant will have to contact the customer for a new authorization to charge the credit card.
Merchant Errors and Pending Authorizations
An authorization that occurs from a card being swiped in error can be voided if the mistake is caught before the merchant's charges are submitted for processing at the end of the day. This usually will prevent the posting of a pending authorization. If the mistake isn't caught until after submission for processing, the original charge will show as a pending authorization in the card holder's account. Depending on the card issuer and how quickly the merchant is notified of the mistake, the refund request may cancel the pending authorization. If not, the mistaken charge and the refund will be processed as separate transactions, with a timeframe to resolution subject to the procedures of the card issuer.