Credit cards have become the way of life in the U.S. and spurred the country’s economy.
Credit card spending increased tremendously for the past 13 years. According to a report from Federal Reserve in April, outstanding revolving credit reached an annual rate of $870.44 billion or a rate of 12.3 percent.
This marks a surge in increasing consumer confidence and a willingness of banks to open their doors to lending and other financial solutions to both consumers and retail business. Either way you look at it, this is a big boost in the retail industry where many consumers will eagerly go to not only for their needs but also for a few luxuries they can enjoy.
Most individuals will know the basics of credit card processing, but as retail owners, knowing the ins and outs of credit card processing is now more important than ever. This is especially true if you are joining the fray of retail industry. One needs to be well-versed with the workings of credit card procedures as your buyers are likely to use this payment method more often. You will never know when a glitch happens or an error occurs.
If these instances are not attended to immediately, you don’t need to guess what the repercussions could be to your new business, especially as you know you are starting to create a name and reputation in the area.
It is during a transaction where credit card processing happens. Here are a few credit card terms you will need to get used to dealing with in the course of all these transactions.
This is the type of transaction you want to see happening a lot in your business. It is the ideal scenario where everything goes well in the transaction and you can consider this a complete or closed transaction. As soon as the buyer is ready to pay for their purchase and supplies their credit card for you to process, the money gets transferred to the account under the merchant.
Pre-auth and Post-auth
Pre-auth is generally a transaction where a small amount, usually a dollar, is placed on hold on the card. No money is transferred in this instance and the amount can be released after the card has been verified and confirmed as a valid credit card. Likewise, no money is transferred during post-auth transaction.
As the term implies, post-auth occurs when a buyer purchases a product before it is shipped. Also, the amount is initially put on hold or reserved on the card, effectively deducting it from the customer’s actual credit limit. Once the product is shipped, post-auth can be performed and the amount on hold or reserved is transferred to the merchant to complete the sale.
Chargebacks occur when a customer starts disputing a charge made against his or her credit card.
This exercise is tedious but you will need to be aware of how this works so you can attend to it properly.After customers receive their credit card bills, they are given a few days to review the amount charged on their cards and be able to dispute amount that may have been erroneously placed on their credit limit.
This can happen when a supplementary card holder fails to inform the card owner about charges they may have made on the card, a customer forgets making the purchase or it could also be charges made on a lost card. When this happens, the bank will move to withdraw the disputed amount back to the consumer’s account from the merchant.
You, as the merchant, are given ample time to produce proof or record to justify the amount billed against the customer’s credit card. Once the bank is satisfied with the evidence provided by the merchant to support the disputed charges, the same amount is transferred again from the customer’s account back to the merchant.
For every chargeback, the merchant’s bank may also bill a small amount and this depends on the bank’s existing rates at the time. It is important to make sure that you have records of these purchases to support such claims, should the need arise in the future.
Credit came from the Latin word ‘creditum’ which literally means “that which is loaned or entrusted.” Credit is about transferring the money from the merchant account to the customer’s account. It is the opposite of the sales transaction and when you look at the balance sheet during accounting, it will come out as a negative.