Settlement

Introduction

When you pay with a card, your transaction takes a winding route to completion. The final leg of that journey is settlement - the transfer of funds that ties up the payment process. Let’s unpack what happens during settlement and why this financial arc is key.

Defining Settlement

Settlement is the final stage of card transactions when funds actually change hands between banks. This involves:

• The acquiring bank receiving money from the issuing bank.
• The acquiring bank then depositing funds into the merchant’s account.
• Issuing banks withdrawing funds from the customer’s account.

Settlement finalizes transactions that were previously authorized and approved. It usually occurs 1-2 days after purchase.

The Role of Settlement

Settlement's core functions include:

• Fulfilling the financial exchange promised during authorization.
• Providing merchants access to sales revenue.
• Allotting interchange fees between the acquiring and issuing banks.
• Generating statements documenting the completed transaction.
• Triggering accounting entries and recognition of the sale.

Without settlement properly closing transactions, commerce would halt with broken financial flows.

Settlement Speeds and Delays

Settlement speeds depend on:

• Card type - Debit, credit, prepaid, etc.
• Merchant category - Higher risk profiles may delay settlement.
• Batching - Daily vs. weekly settlement runs.
• Disputes - Chargebacks can place settlement on hold.
• Banking hours - Weekends or holidays can cause lags.

Mastering the intricacies of settlement helps merchants better account for liquidity.

The Bottom Line

Settlement marks the finish line for card transactions, enabling vital account activities. While invisible to customers, properly executing settlement keeps commerce flowing smoothly.

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