A credit card pre-authorization is a temporary hold on a customer's funds, ensuring that money is available for a future transaction without actually charging them yet. Think of it as a reservation for a payment—typically used when the final transaction amount might vary, or where a security deposit is needed.
This article will explain what pre-authorizations are, why and when businesses use them, and how they need to be captured.
In this article
What is a pre-authorization?
A pre-authorization is an initial hold placed on a customer's credit card by a merchant for a specific amount. This hold verifies that the funds are available and reserves them for a future transaction.
| Pre-authorizations are not an actual charge, so the funds aren't transferred to your bank account yet. |
The pre-authorization tells you that the customer has sufficient credit or funds to cover the potential charge.
Temporary hold: Funds are set aside, but not debited from the customer's account.
Validity: Pre-authorizations typically have an expiry period, often around 7 days. After this, they are automatically released if not captured.
Why do businesses use pre-authorizations?
Businesses use pre-authorizations primarily to mitigate risk and manage variable transaction amounts.
| It gives you peace of mind knowing that funds are available before you provide a service or product where the exact cost isn't known upfront, or where there's a risk of damage or cancellation. |
When to use a pre-authorization
Pre-authorizations are incredibly useful in several scenarios. Here are some common examples:
Hotels: When a guest checks in, a hotel might pre-authorize their card for the room rate plus an estimated amount for extras like room service or mini-bar charges. The final charge is only processed at check-out.
Car rentals: Rental car companies commonly pre-authorize a customer's card for the estimated rental cost plus a security deposit to cover potential damages or extra charges.
Restaurants with tabs: For large groups or events, a restaurant might pre-authorize a card to cover the estimated bill, then capture the exact amount once the meal is complete.
Service businesses (e.g. home repairs): If you provide a service where the final cost depends on parts or labor, a pre-authorization can ensure funds are available before work begins.
Delivery services: For food or grocery delivery, a pre-authorization can account for potential changes in the order total or unforeseen fees.
Capturing a pre-authorization
If funds are “reserved”, how does a final payment occur? Well, to complete the transaction and collect the payment, you need to "capture" the pre-authorization. This action finalizes the transaction and charges the customer's card.
You can capture the full pre-authorized amount or a partial amount, depending on the final cost of your goods or services. Once captured, the transaction will appear as a completed sale in your transaction list.
Completion: Capturing a pre-authorization moves the funds from a temporary hold to a completed charge.
Flexibility: You can capture the full amount or a partial amount of the original pre-authorization.
Expiry: Remember that pre-authorizations typically expire after 7 days, so you'll need to capture the funds before then. If a pre-authorization expires, you’d need to create a new one if you still wish to charge the customer.
Next steps
Now that you understand what pre-authorizations are and how they need to be captured, the next step is to learn how to create them in your Helcim account.
FAQs
How long does a pre-authorization last?
Pre-authorizations on the Helcim platform are valid for 7 days. After this period, if the pre-authorization hasn't been captured, it will expire.
Is a pre-authorization the same as a charge?
No, a pre-authorization is not the same as a charge. A pre-authorization is a temporary hold on funds to verify availability, while a charge is the actual debiting of funds from the customer's account and transfer to your business.
Can I capture a partial amount?
Yes, when you capture a pre-authorization, you can capture the full amount or a partial amount, as long as it's within the original pre-authorized amount.