Authorization, Capture and Settlement Explained

Authorization, capture and settlement are the three stages of a card payment. Authorization checks the card and reserves the amount, capture is the merchant's request to collect the reserved funds, and settlement is the payout that moves the money to the merchant. Each stage has a different job.

• Authorization - the issuing bank approves the payment and holds the amount. No money reaches the merchant yet.
• Capture - the merchant asks for the held amount to be collected.
• Settlement - the collected funds are paid out to the merchant, which is when your bank balance changes.

This guide is the written companion to our short video on the same topic, and it builds on our earlier article on how a card payment moves.

What is card payment authorization?

Authorization is the question "can this customer pay this amount with this card?" The request travels from your checkout, through your payment gateway and the card network, to the issuing bank, which is the bank that issued the customer's card. If the bank agrees, it sets the amount aside against the customer's available funds or credit.

An authorization is a reservation, not a transfer. The customer's available balance is reduced, but the funds are only held, and nothing has reached the merchant. An approved authorization is a good sign, but it is not a completed sale.

A reservation also does not last forever. If the merchant never follows up, the hold eventually expires and the amount becomes available to the customer again. How long a hold lasts depends on the card, the issuing bank and the payment method, so do not assume a fixed period.

What is capture in a card payment?

Capture is the merchant's instruction to turn the reservation into a real claim: "we have earned this amount, please collect it." Your system sends the capture request through the gateway, and the payment moves from held to ready to be paid out.

Many online stores authorize and capture in a single step, so the customer is charged at once and the two stages feel like one. The stages can also be separated on purpose. This is often called a two-step flow, or "authorize now, capture later".

Separating the two stages is useful when the final amount or the delivery date is not known at the moment of purchase. Common reasons include:

• Goods ship after the order. A merchant may prefer to capture when the parcel leaves, so the customer is not charged for something still in a warehouse.
• The order changes. Items go out of stock or a delivery fee is added, and capturing later lets the merchant request the correct amount.
• A review step is needed. Some businesses check an order manually and capture only after the check passes.
• Services are delivered over time. A booking can be confirmed first and charged later.

Capturing later is a trade-off. Because holds can expire, the merchant needs to capture within the window that applies to that payment, or authorize again. A late capture can fail, so build the process around your own provider's rules rather than a guess.

What is settlement in a card payment?

Settlement is the stage when funds actually move from the customer's bank, through the payment chain, to the merchant. Captured payments are grouped, reconciled between the parties and then paid out according to the agreement with the payment provider.

Settlement is the stage that affects your bank balance. Its timing depends on your agreement, the payment method and the schedule your provider operates, so read the terms you were given instead of relying on a rule of thumb. Fees are usually accounted for at this stage too, which is why the amount you receive can differ from the amount the customer paid.

Authorization vs capture vs settlement: what is the difference?

The difference is what has happened to the money. After authorization the funds are held, after capture they are requested, and only after settlement have they moved to the merchant.

For reporting, keep the stages apart. An authorized order is not a sale, a captured order is not yet cash in the bank, and only a settled order has moved funds. Matching your own records to your payout reports is much easier when you know which stage each line belongs to. Our guide on how to view and export transactions shows how to review payment records for this kind of check.

What is the difference between a void and a refund?

A void cancels an authorization before it is captured, while a refund returns money that has already been captured. Both undo a payment, but they act at different stages.

When you void, the reservation is released and the customer's funds become available again. Because nothing was collected, there is usually nothing to pay back. When you refund, collected money is returned to the customer and the process follows the rules of the payment method.

A simple way to remember it: void the hold, refund the sale. If you are unsure which applies, check the status of the payment first. Our guide on how to refund a transaction and our explainer on how card refunds work cover the refund side in more detail.

How quickly the customer sees the change on their statement can differ between a void and a refund, and between issuing banks. Tell customers it may take a little time to show, and point them to their own bank if they have questions.

EPaySe is a payment gateway in development for high-risk and regulated businesses, reviewed and approved case by case. We write these guides so that merchants, whichever provider they use, can read their payment reports with confidence.

Key takeaways

• Authorization reserves funds, capture requests them, and settlement moves them to the merchant.
• A merchant who ships later may capture later, but authorization holds can expire, so plan for that.
• A payment should be voided before capture and refunded after capture.
• Keeping the three stages separate in reports prevents mistaking held funds for cash in the bank.
• Timing and fees depend on your own agreement, so check it instead of assuming defaults.

Frequently asked questions

Is an authorized payment the same as a completed sale?

No. An authorized payment is only a reservation of the amount on the customer's card. The merchant has not been paid, and the hold can expire if the payment is never captured. A sale is complete for the merchant only once it is captured and later settled.

Can a card authorization expire before capture?

Yes. If the merchant does not capture in time, the hold is released and the funds become available to the customer again. The length of the window depends on the card, the issuing bank and the payment method, so follow your provider's rules rather than assuming one.

Why does the amount settled differ from the amount the customer paid?

Fees are usually accounted for when funds are settled, so the payout can be lower than the customer's charge. Refunds and other adjustments can also change the total. Compare your payout report with your own records, stage by stage, to see where each difference comes from.

When should a merchant void instead of refund?

Void when the payment has been authorized but not yet captured, because the hold is simply released and nothing needs to be paid back. Refund when the payment has already been captured. Check the payment's status first to see which stage it has reached.

Does capture move money to the merchant?

Not by itself. Capture is the request to collect the reserved funds, and it marks the payment as ready to be paid out. The money reaches the merchant at settlement, on the schedule set by your agreement with the payment provider.

Where to go next

If you want to see the whole journey in one picture, read how a card payment moves. For the other side of a disputed payment, see what a chargeback is and how it works. If you have questions about your own setup, contact the EPaySe team.

This article is general information, not legal, tax or financial advice. Check with your own advisor before making decisions about your business.