I want my credit card sales now! Why the delay?

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One of our readers e-mailed us wondering why there was a delay from the point of the sales transaction to the time the proceeds are deposited into his bank account.

An Excerpt:

I’m curious if there is any imaginable justification for processors/merchant banks delaying card payment to merchants over the weekend. My thursday sales are deposited on Monday, Friday’s on Tuesday — four day’s float.

I don’t actually follow your blog regularly, so if you got the inclination to write about this, an email would be much appreciated so I don’t miss it.

Thx,

Steve

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Hi Steve,

Don’t blame your processor/merchant bank. They are merely 1 party out of many involved in a single transaction.  We’ll divide this into 7 categories for the purpose of this explanation:

  1. Customer
  2. Customer’s card issuing bank
  3. Business
  4. Business’s merchant processor
  5. Business’s checking account bank
  6. The acquiring bank
  7. The payment network
  • A customer comes into your store with a MasterCard credit card he got from Bank of America. He makes a purchase for $500.
  • Your merchant processor passes that up to the Acquiring bank they are sponsored by. (An acquiring bank is the bank that allows them to be a payment processor. They have the permit to use the MasterCard and Visa Networks.)
  • The acquiring bank uses the MasterCard network to trace the payment to Bank of America. They will then find out from Bank of America if the card information is valid, if the account is active, if there is a freeze on the account, whether or not they are under their spending limit, and then request for it to be approved. Bank of America will then reject or accept the transaction and notify the acquiring bank, who will then pass it along to your merchant processor.
  • Your merchant processor will then determine if the sale was processed in a manner that is allowable by your merchant account contract. Is $500 a normal sized transaction or suspiciously high? How often have you charged this customer?  Did you swipe his card or key in the numbers? Is the way you did it considered normal for your business type? Did it prompt for a zip code when you entered the info and if so, did you get the answer right or wrong? All these factors are considered by your merchant processor before approving the sale. Most of it happens by computer, but some by human audit.
  • Once the transaction is approved by all parties, they initiate a wire. Only Federal Reserve wires are instant and they cost a lot of money to send. So rather your merchant processor transfers your sales via the Automated Clearing House (ACH). Those sales never post the same day and the time they post to your account the following day depends completely on what time your bank chooses to accept the wire. Your bank has the ability to accept or reject incoming wire transfers. How large is this incoming transfer? Has there been suspicious activity on the account? Is the customer’s account seriously overdrawn with unpaid outstanding fees? This is decided mostly by computer but also by people. Once approved, that original $500 sale is finally available for you to spend.

So don’t fault your merchant processor. They’re at the mercy of the payment network and banking systems. That being said, next day deposit DOES exist but not everyone can offer it. If the acquiring bank that allows you to accept card payments is also the same bank where you keep your business checking account, then chances are you will already have next day deposit by default.

In regards to the weekend being included in the delay time. If the banks are closed, then the banks are closed. There is nothing you can do about that. That’s the American banking system. Hope that helps!

– deBanked

www.merchantprocessingresource.com

Last modified: February 21, 2013
Sean Murray


Category: Merchant Processing, MPR Authored, Small Business

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