Credit & Debit Card Authorization Holds

Apr 7, 2021

As a merchant, you can use authorization holds to ensure that customers follow through with payment for goods and services. This type of hold temporarily freezes the transaction amount on your customer’s credit card, ensuring that the funds aren’t able to be spent elsewhere while the sale is processing. Below, we discuss how these holds work and when you should use them to secure your sales.

Using Holds During the Authorization Process

If you’re selling goods online or taking deposits for customer purchases and appointments, using authorization holds is a good way to ensure customers have the funds without charging them up-front. When you process the initial transaction, the following process will take place:

  1. You process the transaction by sending an authorization request to the cardholder’s bank
  2. If the transaction is approved, the bank holds that amount of funds on the customer’s card
  3. Once you ship the customer’s purchase or provide the service they’ve paid for, you settle the transaction
  4. The cardholder’s bank reverses the authorization hold and puts the actual charge through

Once this process is completed, you’ll receive the funds in your bank account.

Authorization Hold FAQs

How long do authorization holds last on credit and debit cards?

How long a hold lasts depends on several factors. Each credit card issuer provides a different set of standards regarding how long you have to finalize transaction amounts and there are several other variables that come into play with authorization holds. That includes:

  • Your merchant category code (MCC)
  • Whether the transaction was processed on a credit card or a debit card
  • If it’s a card-present or a card-not-present transaction
  • If you’re processing a recurring transaction or a deposit for services
  • What items and/or services your business renders

What are the benefits of using authorization holds?

Authorization holds offer plenty of benefits. Most merchants that choose to use them do so because they want to ensure that customers have the available funds to cover their purchases when the transaction won’t be completed right away. They also might use them to prevent customers that book services from no-showing. Other scenarios in which you might want to use authorization holds include:

  • Hotel operators authorizing additional funds for incidentals, extended stays or damages
  • Gas stations that pre-authorize funds while customers fill their tanks
  • Restaurants pre-authorize funds for customers bills, allowing the customer to add a tip before the payment finalizes
  • Online grocery stores that aren’t sure of final charges due to weight variances
  • Spas and other service providers that require a deposit to hold appointments

Authorization holds can also be useful to businesses that run the risk of facing inventory shortages and may be unable to fulfill customer requests. Additionally, they can reduce the instance of refunds and chargebacks in customers with buyer’s remorse.

What are the disadvantages to using authorization holds?

While there are plenty of good reasons to use authorization holds, they can have their downfalls, as well. While it’s nice to be able to cancel or settle the transaction when details are finalized, it’s also important to note that in order to effectively use these holds, the information merchants provide to the card issuer when completing the transaction must exactly match the authorization. Without these details, transactions can’t be settled and therefore, the process can be time-consuming and costly if it’s not done right. Additionally, most credit card issuers extend holds when administrative errors occur, which could result in upset customers.

How to Apply for a Payment Processing Account

When you’re ready to apply for a merchant account with a company such as PayDiverse, take a moment to ensure that you’ve got all the necessary documentation and information that will be requested from you.

With PayDiverse, you can complete your application entirely online and in most cases, we’re able to notify you of approval and get you started within just a few days.

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Fill out our free and quick merchant account application and let us match you with many banks that want your business.