How to Avoid Non-Qualified Fees on your Merchant Account by Eliminating Merchant Account Batch Downgrades
Ask the typical consumer how credit card information is transmitted, and chances are you will receive a curious look in response. Merchants, however, know that credit card processing is a series of events: authorization, batch, settlement, and funding. Funding being their favorite part! Merchants may not realize that merchant account downgrades can occur, if the batch step is not completed every 24 hours. Failure to “batch-out” on time will result in an expired batch. Expired batch settlements are downgraded to the non-qualified rate. Non-qualified rates are the highest processing rate a merchant can pay. Here are the steps involved in processing a payment card and what can be done to avoid downgrades.
Authorization
Authorization occurs when the customer presents their credit or debit card for payment to a merchant. The merchant than submits the card transaction to the acquirer through a credit card terminal, software, or gateway. The acquirer verifies the card number and transaction amount validity with the card issuer. Within a few seconds, the cardholder’s transaction is assigned an authorization number.
Batch
Batch can be thought of as the credit card terminals “memory”. Accumulated authorized transactions are stored inside the credit card terminal memory as batch settlements. Merchants cannot be paid until the batch is closed. Batch closing is the transmitting of authorized transactions to the processor for payment. Failure to batch close every 24 hours (when transactions are present) will result in merchant account downgrades, which can be quite costly. Merchants can avoid expensive downgrades by signing up for “auto-batch close” with their merchant account provider. Auto-batch sends out the batch settlements at a pre-determined time.
Settlement
Settlement is an exchange of data and funds between the acquirer and the card issuer. The card issuer receives the authorized transaction requests, and pays the acquirer, minus any fees.
Funding
Once the acquirer has received payment from the card issuer, the merchant receives payment. Payment is equal to the transaction amount minus discount rate. Funding can take anywhere from 3 days to 1 week. Specialty processors, like PaymentMax, offer merchants next day funding.
Avoiding batch closing merchant account downgrades starts with the right knowledge. Failure to close your merchant account batch settlements, once every 24 hours, will result in a downgrade to the lowest pricing tier. The downgrade occurs to all of the authorized transactions contained in that batch. Contact your merchant account provider and ask to have auto-batch added to your account. Auto-batch allows you to pre-set the batch closing time, to fit your schedule. You always have the option to batch close sooner. Batch close automation is an insurance that authorized transactions will be sent for settlement everyday, no matter what. Keeping your qualified rates, qualified!
