Manuel Authorization and Capture What and when to use It
Authorization and capture are the two main components that make up payment processing. And while an automated approach is usually the preferred choice, sometimes it may be needed to make use of manual authorization and capture.
What's at stake?
Paying yourself.
You'll soon see, in certain types of sales transactions, receiving the customer's payment isn't always easy. If you manage this properly, you'll ensure you're able to properly be paid what you owe with minimal friction for the customer.
This article will help you decide if manual or automated authorization and capture is best for your business online as well as how you can use it. It is important to clarify these terms.
What exactly is authorization and what's the difference between capture and authorization?
These two distinct events happen when a client makes an online purchase using a credit card. Most of the time these two events occur at simultaneously. However, they do not have to be however, in certain situations it is the case that you, as the seller may want to separate them depending on the use case.
Authorization
Authorization takes place when the credit card processor contacts the bank that holds the card to verify that they have enough funds to cover fees owed and to confirm that the card is in active use.
As of now, the funds have not yet transferred from the bank that the customer uses to the company, however they remain, at the very least to be used for this purpose.
Authorizations are temporary. They typically expire in seven days which means no money changes in the event that the capture process isn't completed prior to expiration.
Capture
Capture, also called the settlement of the payment occurs when the payment actually transfers between the customer's bank as well as the retailer. Your bank instructs the processor of payments to take money from the bank of the client and then transfer them to your account.
What are the places where authorization and capture sit within the payment process?
By default, these two events occur simultaneously at in parallel, which is the best for the majority of businesses. But for certain use cases like the ones you're about see, it's important to differentiate them into separate instances.
Manual Vs. automated authorization and capture
Before we look at separating them, let's be sure that you know what you're doing.
When authorization and capture happen simultaneously and are automated, both will be automatically.
If you wish to separate the two instances, then you could create a manual capture procedure. In that situation, you would have to go into the payment processor you use and initiate the capture process. In the case of payments, you could enable this within the admin settings.
When is manual capture helpful?
We'll look at a few scenarios that can help you determine if using a manual capture process might be a smart strategy for your business.
Gas or petrol
If you are filling the tank with gas, the authorization process happens prior to the pumping of any gas. The fuel company will then authorize your credit card, and permits you to pump but doesn't record the charges yet because it isn't aware of the amount of fuel you'll be able to buy.
Hotels
For most hotel transactions, the guests' card gets authorized before or at check-in for an approximate amount, based on the number of days they've booked their room. The capture procedure usually is completed at check-out, after the actual amount owed is established.
Equipment rental businesses
Especially with expensive equipment, many companies charge the customer's credit card prior to providing the equipment to be rented. This will ensure that they are able to pay charges. A few businesses permit payment of what is actually worth of the item, and not only the rental cost, in case it gets damaged or lost. When the item has been returned, the amount that is paid is refunded.
Artisans
Many artisans do customized work and rates vary from job job. The cost to be charged will not be established until the job is finished, particularly if labor charges are charged per an hour. Sometimes they may want to authorise and take a part of the amount upfront before completing all the remaining work after it is completed.
If you keep these instances in mind, you are able to start to think of scenarios within your personal business in which the separation of authorization from capture might be necessary.
If you're simply filling online for orders that you then ship generally, there's no need to make a distinction between authorization and capture. However, if the exact value of the transaction isn't determined prior to the time that the item will be shipped on the end of the month there may be a need be able to approve payment before however, you don't have to record it at the same time.
Manual capture disadvantages
There are some risks that come with using manual capture. Let's review a few things to be aware of.
The first is that you cannot capture more than the amount you have authorized. The only limit is the exact amount or less. Therefore, if you're unsure of the price you'll end up paying making the decision to authorize it upfront is a risk of undercharging. This means you'd need to create an additional charge, or even cancel the initial one and restart the process with the greater amount. Both options are unlikely to leave the customer satisfied.
The authorization then expires after seven days. So, in situations with longer wait times between the time of order placing and fulfillment, if you wait for payment to be processed until delivery of your order has been completed, you run the risk of the transfer being declined. When that happens there is a chance that you'll end up being able to ship the item but not able to get the payment.
You'll need to contact the customer for a new payment procedure once more.
This is why it is not recommended to do so unless there's a good reason to separate authorization from capture and understand the potential risks involved not to do so.
Lastly, manual capture can only be achieved with payment cards. It is not possible to capture applications or payment methods that are local like Venmo.
Improved manual authorization and capture in payments
Keep in mind that you're able to take more than you've authorized however, you cannot capture more. If you're doing the process by hand, you'll need to manage this within the processing company.
Best practices for managing manually authorized authorization and recording
Here are some key guidelines to keep in mind when you are using the manual procedure.
1. Do not use manual authorization or capture without having a valid reason
It creates friction on your website, adds to your burden, and could put the site at risk of some of the scenarios described above. If you're able to provide a compelling justification to employ manual capture, then simply stay at the top of your game and you'll be good.
2. More than you need to capture
Like we said, you may take less or the exact amount, but you can't charge more than you authorize. So if the final price of the purchase isn't available at the time of purchase, authorize a higher amount that you believe you'll in charging.
3. Don't delay to end the authorization for cancelled orders
If a customer decides to end their purchase, don't let it sit for seven days before allowing the authorization to run out. It is best to cancel the order immediately.
4. Check your payments dashboard regularly
In particular, in businesses with higher transactions You don't want to be unable to capture any payment if you're using the manual approach. So check your dashboard consistently. Using manual authorization and capture is a requirement. You should integrate this procedure into your routine.
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