Small Business Credit Card Processing: How it Works

The following is an overview of how small business credit card processing works. Credit card payment processing for your small business takes place in two phases: authorization (getting approval for the transaction that is stored with the order) and settlement (processing the sale which transfers the funds from the issuing bank to the merchant’s account). Below are the key steps in the process starting from what a customer sees when placing an order through completing the sale and finishing with the merchant processing the sale to collect funds.

Authorization Process for Small Business Credit Card Processing

When the buyer clicks the “Checkout” button, they are sent to secure servers to complete the checkout process. The Buyer (cardholder) places an order at the merchant’s site by clicking the “Send Order” button on the Review Order page during checkout.

The merchant then sends the authorization request to the payment processor. The payment processor sends the authorization request to the issuing bank or credit card association.

The authorization request includes: the credit card number, expiration date, the billing address, the CVV number, and the amount of the order.

The Issuing Bank (or Credit Card Association): validates the card number and expiration, checks the amount of the order against the available credit, checks the billing address provided against the billing address on file, and validates the CVV number

If approved, the amount of the order is reserved from the total of available credit for the cardholder.

The Issuing bank (or Credit Card Association) sends the authorization response to the payment processor who specializes in small business credit card processing. The authorization response consists of either an approval along with Address Verification System (AVS) and Card Verification Value (CVV) response codes or a decline.The payment processor adds response codes for small business credit card processing to the authorization response and passes the authorization back to the merchant.

Depending on the state of the authorization, the buyer (cardholder) receives instructions or confirmation of the order:

• If declined, the buyer (cardholder) is informed and asked to try a different payment method.
• If the authorization is approved by the Issuing Bank (Credit Card Associations) then the buyer (cardholder) is taken to the Order Confirmation page.

Settlement process for Small Business Credit Card Processing

The merchant signs in to their account and goes to the Order Manager. The merchant reviews the order (including AVS and CVV response codes) for signs of fraud. When ready to complete the sale, the merchant clicks the “Sale” button in the transaction panel of the order. Clicking “Sale” initiates the settlement process for small business credit card processing. The sale is then stored in a batch for settlement request submitted each night. By default, batches are submitted nightly between 6-11 pm (PST). Merchants can also choose to submit batches manually with small business credit card processing.

The settlement request batch with all completed sales is sent to the payment processor.The payment processor submits the settlement request for the buyer’s order to the Issuing Bank/Credit Card Association of the buyer on behalf of the merchant.

With small business credit card processing, the Issuing Bank/Credit Card Association sends the response to the settlement request back to the payment processor. If the request is accepted, the buyer (cardholder)’s account is debited for the amount of the order.

It is possible that the settlement request will be declined, e.g., if the buyer has exceeded their credit limit between the time of the authorization and settlement.

Then, the payment processor sends the approval and details of the payment to the merchant’s bank (Merchant Account Provider). The settlement of funds between the issuing bank and the Merchant Account Provider occurs.

Following the settlement, the Merchant Account Provider credits the merchant’s account. For information about when funds will be deposited when using small business credit card processing, contact your merchant account provider.