People often get confused when it comes to authorizing and capturing credit cards on their website. Even the terms are a bit confusing if you're not a banker or credit card processor. This article attempts to explain the authorization and capturing of credit card information,and offers a recommendation on how it should be configured on your website.
I'm sure you have seen this authorization and capturing process in your daily life, especially if you like to go out to eat. Let's say you take your significant other out for a nice meal, and the bill comes to $100. Given your server did a pretty good job, you're likely to give them a $20 tip. If you were to check your bank account when you left the restaurant you'd notice there was a hold on your account for $100, which is called the authorization. However, later you'll notice the restaurant debited $120 from your account, which of course is the $100 meal plus the $20 tip. This is called the capture.
There are two approaches to capturing payments on your website involving this authorize and capture process:
- Authorizing & Capturing Together
- Authorizing & Capturing Separately
I will discuss both approaches and the pros and cons of each.
Authorizing & Capturing Together
Authorizing and capturing someone's credit card payment together at checkout will deposit the funds in your bank account the day the order was placed. On the surface, this sounds great, because who doesn't want to get their money as soon as possible? However this approach has some drawbacks:
- If you're unable to ship the entire contents of someone's order, you'll need to issue a return or refund for anything that can't be shipped. For example, if someone purchased two items for $50 each, but you were unable to ship one of these items, their credit card would be charged for the full amount ($100), and they would see a separate line item for the item that was refunded ($50). Not the best customer experience, and it'll surely cause questions from your shoppers.
- Ecommerce platforms are starting to give users the ability to edit orders. Meaning you can edit someone's order to replace a blue t-shirt with a red one, exchange sizes, etc. You're not going to be able to use these order editing features if you've authorized and captured the consumer's funds in checkout.
- If you read the fine print from your credit card company, you're technically not allowed to charge someone's credit card until you ship the product to them. Therefore, you're breaking the "rules" when someone orders something on a Monday but you don't ship it until Wednesday. However, I doubt the credit card cops will come and arrest you, it's a pretty common practice.
Authorizing & Capturing Separately
Like the restaurant example above, authorizing funds in checkout and then capturing payment when you ship their goods is done in two different steps. Very often these steps are done on separate days, because you don't always ship the items on the same day the customer placed their order. Authorizing and capturing separately has a couple of advantages:
- For most Business to Consumer (B2C) website integrations, Modern Retail sends completed orders down to your POS or ERP system after they've been shipped. If you've authorized and captured separately, then the credit card funds going into your bank account for the day will exactly match the day's orders going into your POS or ERP system.
- As mentioned above, many ecommerce platforms are allowing you to edit and modify website orders (Your customer service reps undoubtedly will want to use this feature). The only way to support the editing or modifying of orders is by doing the authorizing and capturing as two separate steps.
For most Business to Consumer (B2C) websites we recommend you authorize and capture the consumer's credit cards separately. However, if you sell mostly to businesses, aka "Business to Business (B2B)", then you're likely sending Open Orders down to your POS or ERP system. In this case, you're likely authorizing and capturing together in checkout. However, as more and more businesses go direct to consumers and connect to their website to marketplaces such as Amazon and eBay, this approach will be challenged. Again, you'll likely authorize and capture funds separately whenever you find yourself selling directly to consumers.
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