Credit card payments have become an integral part of the way we conduct business. For small businesses like restaurants, medical clinics, and retailers, it has become essential to accept and process credit card payments in order to stay competitive.
However, one common question that merchants often ask is, “How long does a credit card payment take to process?” Typically, a payment can take anywhere from 24 hours up to three business days to process, but it depends on several factors.
How Does Credit Card Processing Work?
Payment processing with credit cards can be broken down into several key steps:
When a customer swipes, inserts, or taps their credit card at your business, the payment terminal sends the card information to the acquiring bank or payment processor. This is the first step in the credit card payment processing chain. The acquiring bank then sends the transaction request to the card network (e.g., Visa, Mastercard, American Express) for authorization.
The card network, in turn, communicates with the card issuer (the bank that issued the credit card to the customer) to authenticate the transaction. During this stage, the issuer checks whether the customer’s credit limit is sufficient, the card is not reported as lost or stolen, and there are no holds or restrictions on the card.
3. Approval or Decline:
Based on the authentication results, the card issuer sends an approval or decline message back to the acquiring bank. If approved, the acquiring bank relays this information to the payment terminal, and the transaction proceeds. If declined, the customer is informed that their payment was not accepted.
4. Batch Processing:
At the end of the business day, the merchant accumulates all authorized transactions in a batch. This batch is then sent to the acquiring bank or payment processor for settlement.
During this stage, the acquiring bank transfers the funds from the card issuer to the merchant’s bank account. This process typically takes a few business days and depends on the card network and the agreement between the merchant and the acquiring bank.
6. Posting to the Customer’s Account:
Once the settlement is complete, the card issuer posts the transaction to the customer’s account, and the customer’s available credit balance is updated accordingly.
How Long Does it Take for a Merchant to Receive Funds?
Dynamic Merchant Solutions understands the timeline for merchants to receive funds from credit card payments is crucial for small businesses managing their cash flow. The factors that can determine how fast you receive funds include:
1. Settlement Time:
The primary factor that determines when a merchant receives funds is the settlement time. As mentioned earlier, after a successful credit card transaction is authorized, it enters the settlement process. Settlement times can vary depending on several factors, including the payment processor’s policies, the type of business, and the agreement between the merchant and the acquiring bank.
For many merchants, the standard settlement time is one to two business days for card networks like Visa and Mastercard. However, it’s essential to note that some payment processors offer faster settlement options for an additional fee. This can be particularly beneficial for businesses that rely on quick access to funds.
2. Business Type and Risk Assessment:
Certain types of businesses are considered higher risk by payment processors and acquiring banks. Examples include online retailers, subscription services, and businesses with a history of chargebacks. In such cases, payment processors might implement longer settlement times as a risk mitigation measure. Merchants in high-risk categories should be aware of this potential delay and consider measures to reduce their risk profile.
3. Batch Processing:
The timing of when a merchant batches their transactions can affect when they receive funds. If a merchant batches transactions at the end of the business day, the settlement process typically begins the following day. However, if a merchant batches transactions later in the day or outside regular business hours, it may delay the initiation of the settlement process.
4. Weekends and Holidays:
Business days and banking hours play a significant role in the speed of settlement. Weekends and holidays can lead to delays in the processing of credit card transactions. Transactions that occur on weekends or holidays may not begin the settlement process until the next business day, extending the time it takes for a merchant to receive funds.
5. Agreement with Payment Processor:
Merchants have flexibility in negotiating their agreements with payment processors and acquiring banks. These agreements can include specific terms regarding settlement times and fees. Some merchants may opt for faster settlement times, while others may prioritize lower processing costs. It’s essential for merchants to review and understand their agreements to set the right expectations for when they will receive funds.
6. Reserve Accounts:
In certain cases, payment processors may establish reserve accounts for merchants. These accounts are used to cover potential chargebacks and disputes. Funds from credit card transactions may be held in reserve for a specific period before being released to the merchant. While reserve accounts serve as a risk management tool, they can also extend the time it takes for a merchant to access their funds.
When Are the Transaction Fees Taken Out of a Payment?
Transaction fees are the charges imposed by payment processors and card networks for facilitating credit card transactions. Here’s how these fees are typically handled:
1. Merchant Account Statement:
Transaction fees are usually not deducted from the payment at the time of the transaction. Instead, they are aggregated and billed to the merchant separately. Merchants receive a monthly or periodic merchant account statement that outlines all the transactions processed during that period, along with the associated fees.
2. Billing Cycle:
Payment processors and acquiring banks have specific billing cycles for transaction fees. These cycles can be monthly, weekly, or even daily, depending on the agreement between the merchant and the processor.
3. Fee Calculation:
Transaction fees are calculated based on various factors, including the type of credit card used (e.g., rewards cards often have higher fees), the processing volume, and the merchant’s agreement with the payment processor. The fees are typically a percentage of the transaction amount plus a fixed per-transaction fee.
4. Fee Deduction:
At the end of the billing cycle, the payment processor deducts the transaction fees from the merchant’s account. This deduction is typically automated, and the merchant can review the detailed breakdown of fees in their merchant account statement.
5. Net Settlement:
After deducting the transaction fees, the remaining amount is settled to the merchant’s bank account. This net settlement represents the actual revenue the merchant receives from credit card transactions after accounting for fees.
It’s important to note that the timing of fee deduction may vary depending on the payment processor and the terms of the merchant’s agreement. Some processors deduct fees daily, while others do so on a monthly basis. Merchants should review their merchant account statements carefully to understand the fees associated with their credit card transactions.
Credit card transaction fees are not deducted at the time of the transaction but are billed separately and deducted according to the merchant’s billing cycle. Understanding the fee structure and reviewing merchant account statements is essential for merchants to effectively manage their payment processing costs.
Receive Funds Fast with Dynamic Merchant Solutions
Credit card payment processing is essential for today’s businesses. While the authorization of credit card transactions is nearly instantaneous, the time it takes for payments to post can vary based on factors such as batch processing, card network, and your bank.
Dynamic Merchant Solutions offers the best merchant services to small businesses. We have more than just the best rates, with 24/7 customer service and exclusive marketing solutions. Contact us today to talk about accepting credit and debit cards for your business.