Merchants accept credit cards for several reasons. Credit cards are convenient for customers, they reduce the amount of physical cash required on the premises and, if e-commerce is involved, they are the easiest form on online payment. While merchants accept that the use of credit cards is part of doing business, they dislike the time lag between purchase and payment.
When a customer makes a purchase, they swipe their card or enter their information online. Their card information is entered into the merchant’s system and digitally sent to their credit card processor. The processor handles authorizing transactions and sends a confirmation code. This also creates a receipt for the customer. If declined, the processor sends a declination to the merchant. The processor sends the debit information to the company issuing the credit card and the amount is debited from the customer’s account.
At a time determined by the merchant, generally the end of the business day, the merchant performs a settlement function on their credit card terminal. This sends all the transactions of the day in a single batch to the credit card processor. The terminal issues a report showing all transactions, by issuer (Visa, MasterCard, Discover, etc.), as well as total credit card sales for the day. This allows the merchant to reconcile their sales for the day.
Once the information is sent to the credit card processor, the information is processed and sent to the various issuers for payment. The issuers review the information, and then release payment to the processor for disbursement to the merchant. The credit card processor then deposits the funds into the merchant’s business account. This process generally takes 48 hours. At the end of the month, or billing cycle, the credit card processor bills the merchant for services, generally based on terms stated in the contract.
The 48 hour turnaround, while inconvenient, assures that each step in the process is performed securely and that the each party is debited and credited correctly. Credit cards are becoming the preferred payment method for consumers. Merchants must be ready to provide a secure service for their customers and be willing to accept a minimal delay in payment as the cost of doing business.