It’s exciting to see sales adding up as payments are processed. You worked hard to earn them. But at the end of the day, most business owners want to know “When do I get the money?”
When you use batch payments, getting paid for your hard work starts after all the credit card transactions have been collected for a given day. These payments are then bundled together in what is known as a batch and submitted for payment.
What is a Batch Payment?
A batch includes all of the sales and refunds that were successfully authorized during the batch period. A batch payment or batch payout is when the funds from that set of transactions are deposited into your bank account.
How Batch Credit Card Processing Works
When credit card payments are processed by batch the two sides of the transaction – the authorization and the settlement – are completed separately.
During authorization, a transaction is approved (or not) by all the parties involved but it is not yet collected for payment. At this point, an approved transaction returns the “pending” status on both the customer’s and the business’ end.
When a batch of payments is settled, all of the transactions in the batch are completed and the funds are moved to the business’ bank.
As we’ll see in a moment, settlement is not quite instant and it can take a couple of days for the batch payment to show up in the business bank account.
Most traditional credit card processors work on a standard 2-day funding schedule for batch payments. This means the money is received on the 2nd business day after the batch has been closed.
In some cases, next-day funding is possible, although it may come at an extra cost or only when specific criteria are met, like a minimum processing volume or a certain risk profile.
Batch Cut-Off Times
What time a batch closes can affect how long it takes to be deposited. Processors have a daily batch cut-off time when they stop processing batches for that date.
You’ll need to close your batches before then (a 30-minute buffer is recommended) to be sure they are processed on the same date. If your settlement time is scheduled later than the processor’s batch cut-off time the completed batch will be dated on the following business day.
As a customer, you may have noticed this when transactions on your bank statement are dated a day or two later than they occurred.
The Settlement Process
While it’s not necessary to know all of the steps that happen when a batch payment is processed, it helps understand the gap between the moment a batch is closed and when the deposit appears in the bank.
When a batch closes, the processor alerts their bank (the acquiring bank) that the batch is ready for payment and the settlement begins.
- The acquiring bank alerts each respective cardholder’s bank (the issuing bank – the bank that issued the card) that it’s time to transfer the payment that was authorized on the cardholder’s account at the time of the purchase.
- The issuing bank releases the payment and moves the transaction from pending to posted in the cardholder’s transaction record.
- When all of the payments are received, the processor marks the batch as settled and sends the batch amount (less any adjustments) to the Federal Reserve’s Automated Clearing House. (This is where the ACH payment type gets its name.)
- The Automated Clearing House adds the batch information to a massive collection of ACH transaction data for the entire US banking network.
- In a feat of modern technology, the Automated Clearing House sorts the ACH payments by destination and re-distributes them to the respective banks.
- Your bank receives a lump sum of all the ACH payments meant for their customers, sorts them by account, and deposits the batch payment to your business bank account.
In the early days of credit card processing each step required about a day to complete. But as technology has advanced, the timeframe has collapsed so that the standard 2nd-day funding is quite reliable.
Batch Payment Processing vs Real-Time Processing
The primary difference between batch and real-time payment processing is whether each transaction is settled immediately when it is authorized or multiple transactions are settled at intervals in batches.
There are some specific costs and benefits to batch payment processing:
- Fees – each batch is charged a small fee (perhaps $0.25) for processing. With real-time processing, each transaction becomes its own “batch” and is subject to the batch fee. Processing multiple transactions in one batch means that the fee is only charged once per batch.
- Simplicity – reporting, and accounting are generally easier when all of the transaction information is in one place.
- Speed – real-time processing can be slightly faster from sale to deposit, but it is usually a negligible difference in the long run.
Automated vs Manual Batching
Automated batching happens at the same time every day and includes all the transactions from the preceding 24 hours.
For online businesses, this is the standard choice since there is not a natural “beginning” and “end” to the sales day. Customers may visit the Website and make a purchase at any hour of the day or night.
Any sales made after the settlement cut-off time are simply added to the next day’s batch.
Manual batching may be done at any time interval (once a day or several times) and is common for brick-and-mortar businesses that don’t know at the time the card information is captured what the final transaction amount will be.
Gas stations, restaurants, and beauty salons generally use manual batching because they have to adjust the final ticket amount. These final adjustments account for how much gas was purchased or a tip amount added to the original sale.
Is Batch Payment Processing Right for My Business?
Using batch payments can be a practical way to save on fees and streamline credit card processing.
Whether your business processes large numbers of transactions, requires adjustments to final authorization amounts or operates in an online environment without a closing time, the cost-saving simplicity of once-a-day batch payment processing holds many benefits.
Your payment provider can advise you about the most beneficial payment batching arrangement for your business model.
We Can Help!
Easy Pay Direct has helped countless business owners determine the best and easiest payment processing strategy for their business model.
Get started with our Easy Merchant Application today to find your best batch payment option!