What is “Settlement” in the Payment Processing World?

When it comes to the credit card processing world, there are description words used that a consumer or merchant account holder may see from time-to-time on their credit card or bank statements. Those words can include: pending, processed, or settlement.

A pending transaction is when a credit or debit card has been swiped, and the transaction is still waiting on the bank to transfer funds from one bank account to the other bank account. A processed transactions means the bank has verified the transaction amount and has adjusted the funds accordingly between the bank accounts used. For example, a customer bought a product from a business with their credit card, and the bank from their credit card transferred funds into the business’s bank account. When that process is done, it will move the transaction amount from a pending transaction to a processed transaction.

A settlement transaction on a statement, which is hardly seen, is when a bank takes the funds and makes the adjustment immediately. There is no waiting for transactions that are settled. The funds are taken from the first bank and immediately put into the second bank’s account.

These terms can seem tricky to some consumers or merchant account holders that have never dealt with credit or debit cards before. A settlement is just another way of saying the transaction is complete and will be done as soon as the credit or debit card was swiped. Businesses can work with their credit card processing company to see if they are going to have any type of transactions that will settle immediately. This type of transaction can ensure that businesses can get their funds from consumers right away.

Any time a credit card is processed, the credit card reader is going to state approved or declined for the purchase. An approved message means the funds are available on the card holder’s account. A declined message means the card holder does not have enough money available for the transaction. Even if the message comes back approved, there is still a pending status that can take place. The reason being is that the bank has to finish moving the funds to the correct bank account. This process can happen either at the end of the business day or within a couple of business days. It is up to the consumer or business owners to find out how long transactions can take place with the company or bank they are using.

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