Understanding How Long Do Authorizations on Credit Cards Last and Their Impact

Authorizations on credit cards can last anywhere from a few hours to several days, depending on the type of transaction and the merchant's policies.

Most credit card authorizations last around 24 to 72 hours, but some merchants may hold onto the authorization for up to 7 days.

This can be frustrating for consumers who are eager to receive their goods or services, but it's essential to understand that these temporary holds are a security measure to prevent fraud.

In some cases, authorizations can be held indefinitely if the merchant is unable to verify the transaction or if the cardholder's account is flagged for suspicious activity.

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A pre-authorization is like a holding charge on your credit card, where the issuing bank checks to see if you have enough funds to cover the purchase without actually debiting your account.

This hold places the authorized funds into a temporary reserve, giving the merchant priority over a pool of cash in your account.

The bank essentially puts a hold on your money to prevent you from spending it elsewhere.

A pre-authorization is not the same as a regular transaction, where the funds are actually deducted from your account.

The funds used to make the purchase are put on hold to protect the merchant and prevent fraudulent activity.

This pre-authorization hold can be released once the merchant confirms the transaction is legitimate.

In some cases, the hold can be released earlier if the merchant cancels the transaction or if you contact your bank to request the hold be lifted.

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Pre-authorizations can last anywhere from one day to 31 calendar days, depending on the industry and transaction type. This means that merchants can hold funds from a customer's credit limit for up to a month.

The hold length can vary significantly, so it's essential to understand the maximum hold length to avoid misuse charges and inform customers. Vendors can release the hold anytime, but it's best to do so as soon as possible.

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Pre-authorizations are often used by merchants who need a few days to process online orders, and they can be a great way to keep customers at ease. However, charging a credit card hold for too many days after authorization can lead to authorization-related chargebacks.

The length of a pre-authorization can be influenced by the merchant's merchant category code, the card network, and type of payment card. This means that different businesses and payment methods may have different pre-authorization hold lengths.

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Pre-authorizations can be categorized into different types, each with its own purpose and implications. There are three main types: Authorization Hold, Over-the-Credit Limit Administrative Hold, and Late-Payment Administrative Hold.

An Authorization Hold confirms that the customer has the necessary money in their account balance to settle the transaction. This type of hold is usually temporary and is released once the transaction is completed.

An Over-the-Credit Limit Administrative Hold occurs when a customer exceeds their credit card limit. This hold prevents customers from using their cards until they pay their outstanding balance.

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A Late-Payment Administrative Hold is issued by the credit card issuer when customers fall behind on their payments. These holds can last for months until the customer begins making regular repayments.

Here are the types of pre-authorizations in a concise list:

Merchants can activate pre-auths by adjusting settings in their payment gateway. This allows them to pre-authorize customer payments, sometimes referred to as a reserve.

By setting up pre-auths, merchants can pre-authorize a transaction amount, which enables all the benefits that come with it.

Pre-auths essentially reserve funds from the available balance of a customer's credit limit.

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Rental car transactions often involve authorization only holds to reserve funds for potential additional fees. A driver may have their card authorized for an amount exceeding the rental charge, but the transaction isn't finalized until the car is returned.

Hotels may also charge a reserve fee for potential incidentals during a customer's stay, and funds may be charged for room service or à la carte items found in the room. This hold is adjusted when the guest checks out.

Gas stations and restaurants commonly use short authorization holds to allow cardholders to add tips. These holds are usually temporary and don't involve a final transaction.

Businesses may use authorization only sale transactions if an item is temporarily out of stock, placing a hold on the amount the product costs until it's available. The transaction is finalized when the item is given to the customer.

Banks and financial institutions may charge a business a fee if an authorization only transaction isn't finalized within a given period of time. Businesses must weigh the possibility of incurring a fee against the financial benefits of placing a hold on a customer's account.

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Only transactions, also known as authorization only transactions, are a type of pre-authorization that holds funds from a customer's account without finalizing the payment.

These transactions are often used by merchants to verify customer information, reduce fraud risk, and protect their interests. They can also expedite the cash transmission process, allowing for better cash flow and potentially reducing or eliminating chargebacks.

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A common example of an only transaction is a rental car reservation, where the rental company requests authorization for a specified value, but doesn't complete the transaction until the car is returned. The final amount taken from the cardholder's account is adjusted when the guest checks out.

Only transactions can be confusing or frustrating for customers if they're unaware of the transaction type. They can place a hold on funds, making it difficult for customers to access their money or process other payments.

Some benefits of only transactions include:

However, only transactions also have some drawbacks, including:

Managing Pre-Auths is a crucial part of the authorization process. Clear communication with customers is key to ensuring they understand the possibility of a credit card hold during the purchase process.

Merchants can activate pre-auth functionality in their payment gateway, which allows for the reservation of funds from the customer's available credit limit. This is sometimes called a reserve.

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To effectively use pre-auths, merchants should clearly communicate the purpose, duration, and any specific conditions associated with the hold to their customers. This information should be provided during the purchase process.

Accurate amount calculation is also essential to avoid customer dissatisfaction or inconvenience. The authorized amount should reflect the total purchase cost, including taxes, fees, and any potential additional charges.

Here are some best practices for managing pre-auths:

By following these best practices, merchants can effectively use pre-auths while minimizing customer inconveniences and maintaining positive relationships with their customers.

Credit card authorizations offer several benefits to merchants, including payment guarantee, reserved funds, and better inventory management. This ensures that merchants can prevent overselling or running out of stock.

A payment guarantee is provided by credit card authorizations, reducing the risk of non-payment. This is especially important for merchants who rely on timely payments to manage their finances.

Reserved funds are set aside specifically for the transaction, reducing the likelihood of the customer using those funds for other purposes. This can help merchants avoid overselling or running out of stock.

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However, credit card authorizations also have some drawbacks, including temporary reduction in available funds, inconvenience for customers, and potential for errors. The duration of the authorization hold can vary, and the release of funds may not be immediate.

Here are some of the cons of credit card authorizations:

Authorization holds can significantly impact your available credit limit. If you have multiple authorizations pending, the cumulative effect can be substantial.

The duration of an authorization hold varies, but it can take several days or longer for the hold to be lifted and your credit limit to be restored.

Authorization holds increase your credit utilization ratio, which can impact your credit score. The higher the ratio, the more it can affect your score.

The amount of the authorization hold restricts your spending power until the hold is released.

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Credit card authorizations offer a range of benefits, but they also come with some drawbacks. Let's take a closer look.

Payment guarantee is one of the biggest advantages of credit card authorizations. It ensures that the customer's funds are available and reserved for the transaction, reducing the risk of non-payment.

Temporary holds on available funds can be a hassle for customers. This is because the authorized amount is temporarily held, reducing the customer's available credit or balance until the transaction is completed.

Better inventory management is another benefit of credit card authorizations. By authorizing the payment before completing the transaction, merchants can prevent overselling or running out of stock.

The duration of the authorization hold can vary, and the release of funds may not be immediate. This can cause delays in accessing the reserved funds.

Order confirmation is also a significant advantage of credit card authorizations. It serves as confirmation that the customer intends to proceed with the purchase.

Here are the pros and cons of credit card authorizations summarized:

Chargebacks are a real concern for businesses, and understanding the reasons behind them can help prevent losses. One reason for chargebacks is authorization hold results, which occur when a transaction is not completed within the guidelines defined by the card issuer.

Authorization-related chargebacks can happen when a merchant holds a credit card transaction for too long, exceeding the recommended seven-day period. MasterCard's chargeback guide specifically notes that issuers may submit an authorization-related chargeback when the authorization chargeback protection time period has expired.

For merchants located in Europe, an authorization-related chargeback may occur if the account was permanently closed before the chargeback was processed. In other regions, a chargeback may be filed if the issuer deemed the account not to be in good standing before filing the chargeback.

Reason code 4521 in Amex's Chargeback Code Guide is specifically for lengthy authorization holds, where the merchant submitted a transaction for payment but the authorization exceeded seven days. The Visa Chargeback Management Guide notes that holding transactions beyond the period defined in your merchant agreement can result in losses and affect customer service.

To avoid chargebacks, it's essential to follow the card brand guides and partner with a Merchant Account Provider that has your best interests in mind. Some Virtual Terminals are programmed to automatically void held transactions on the seventh day, protecting your business from losses and chargebacks.

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