When a customer pays with a credit card, the merchant doesn’t automatically receive those funds. Instead, they must go through the process of settling their transactions – typically in batches at the end of every day – to get paid. If they don’t settle their batches in a timely manner, funds can be delayed, records are harder to reconcile, and they face a higher risk of chargebacks.
In this post, we’ll explore why same-day settlement is the best practice and how merchants can streamline this process.
What Is Batch Settlement?
Batch settlement is the process where a merchant submits a group of authorized credit card transactions to their payment processor for settlement. The best practice is to complete this at the end of each business day, but the timing can vary depending on the merchant’s business processes, the technologies they use (e.g., physical credit card terminals vs. software that’s integrated into their ERP) and their payment processor’s requirements.
Benefits of Same-Day Batch Settlement
- Improved Cash Flow – Submitting batches promptly ensures quicker access to funds. While standard credit card funding times can range from one to three business days, settling before your processors’ daily cut off can lead to next-day funding in many cases.
- Reduced Processing Costs – Delaying batch settlement can lead to higher interchange fees. Even a 24-hour delay can result in increased costs.
- Lower Risk of Chargebacks – Timely settlement reduces the window for customers to dispute transactions, thereby decreasing the likelihood of chargebacks.
Automating and Streamlining Daily Batch Settlement
Merchants can adopt several strategies to ensure timely batch settlement:
- Set Clear Cut-Off Times: Establish and adhere to a daily cut-off time for batch submission.
- Automated Settlement Scheduling: Configure your payment gateway to automatically close and submit batches at your daily cutoff time. This way, you don’t have to rely on an employee’s memory to log in, find the settlement option, select individual transactions, and submit the batch. (A backup plan for manual settlement is still a good idea, but only as a last resort – not a daily SOP.)
- Integration with Accounting Systems: Link your payment processing system with your accounting software to synchronize transactions and streamline reconciliation.
- Monitoring and Alerts: Set up notifications to alert you if a batch hasn’t been settled by the designated time, or if any of the transactions fail to settle. If you can, review your settlement reports daily to catch anomalies, such as partial funding or batch failures. Catching small issues quickly prevents major chaos during month-end close.
Your payment gateway and credit card processor can assist by providing tools and support to ensure batches are settled on time.
Consequences of Delayed Batch Settlement
On the flip side, failing to settle batches promptly can lead to:
Increased Processing Fees: Delays can result in higher interchange fees.
More Chargebacks: Extended settlement periods increase the risk of chargebacks.
By adopting these best practices, merchants can optimize their payment processing, reduce costs, and reduce credit card processing fees. Ready to make your approach more efficient? Contact us today to learn more.
