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Auth-Only vs. Auth-Capture
martyt




msg:631911
 7:26 pm on Dec 9, 2003 (gmt 0)

My credit card processor is telling me that if I do an authorize-only transaction and then come back and to the "prior-auth-capture" at a later time, that I'm not eligible for the best discount rate for the transaction.

I've been doing the authorize and capture separately for months, ever since my business started, and nearly all transactions have received the best rate. But there were a couple that got the "non qualified" rate (about 1% higher) so I called to ask about those particular transactions. They told me that they've referred the account for review because *all* my transactions should have gotten the non-qualified rate.

Since I ship physical goods, I *can't* capture the funds prior to actually shipping the order. And I can't very well wait until I have all the goods in stock and ready to ship before I even try to authorize the card -- my business involves a lot of "special order" items that I don't always keep in stock; there's no way I can special order something on faith that the customer's card is going to go through later.

Anyone else run into this before? Advice? Is the customer service person I talked to full of baloney?

 

wackal




msg:631912
 9:39 pm on Dec 9, 2003 (gmt 0)

I believe you can charge a credit card and ship later as long as the shipment is sent out within 48 hours. Perhaps this would be enough time for you to get everything together on special orders?

jbinbpt




msg:631913
 9:47 pm on Dec 9, 2003 (gmt 0)

We ship physical goods and complete the card transaction prior to shipping. However, if we know we can't ship immediatly we hold on processing the transaction.

There is a gray area between what they say should happen and what really happens in real life.

jb

PCInk




msg:631914
 9:48 pm on Dec 9, 2003 (gmt 0)

>> Since I ship physical goods, I *can't* capture the funds prior to actually shipping the order.

What? Of course you can charge the card in advance, what makes you think you can't? If you could not, then PayPal and WorldPay would both be in breach. Also, even if you do use pre-auth, you still only get a certain number of days to charge the card before the authorisation is cancelled. WorldPay state 5 days, what if it takes you 7 days to get the goods?

Whoever has told you that you can't take the funds prior to shipment is not telling you the truth.

But there are other aspects to consider:
1) Most customers expect you will charge the card on shipment. If you put it in your terms that the customer is authorising the card and it will be charged immediately (or within a set number of days), then you are covered if they complain.
2) Pre-auth allows you to ignore fraudulent orders, you do not have to refund them. If you do not process the order then you will not be expected to pay any transaction fees, nor do you need to refund the transaction.
3) If you do not use pre-auth, all fraudulent transactions or orders you cannot process (discontinued items, for example) need to be refunded. This is a straight loss as you will be charged the transaction fee(s).

chuladi




msg:631915
 1:33 am on Dec 10, 2003 (gmt 0)


Whoever has told you that you can't take the funds prior to shipment is not telling you the truth.

First of all Visa/MC rules do technically state that a transaction cannot be submitted for payment (settled) until the order is shipped. however, most processors allow 2 business days because that's how long it actually takes for the merchant to get their funds.

PayPal, etc. are under different rules because they do not sell merchandise, they provide a payment mechanism to others. I would expect that when using 3rd party payment systems you are not dealing directly with the merchant bank and may not have issues with these things. And this is something which each person tends to give a different answer on based on their understanding of the regs.

However, they told martyt wrong. Pre Auth vs Auth Capture has NOTHING to do with the qualified rate. Having a non qualified transaction is mostly due to:

settling transaction with an authorization that is more than 7 days old (most hold for up to 30 days)
customer using a corporate, purchase or international card
not having an authorization prior to capturing funds
and other things, but it is not true that authorization only automatically means non or partially qualified rate.

all an auth capture does is authorize and mark for capture simultaneously.

what if it takes you 7 days to get the goods?

If you are actually charging cards/settling transactions and not shipping for 7 days and this is not specially arranged special order or custom merchandise for which the customer is made aware of the terms of service, you could very well find yourself in trouble for that.

johnroger




msg:631916
 2:28 pm on Dec 10, 2003 (gmt 0)

Some states ie California say you can't charge a credit card until the product has been shipped. This means first you need to authorize it, then capture it upon shipment.

I never heard of a merchant charging you more for a "delayed capture". I would switch to Authorize.net. JMO.

PCInk




msg:631917
 3:01 pm on Dec 10, 2003 (gmt 0)

Well can you explain, how do WorldPay get away with it...charging the customers card immediately. Despatch could be much, much later.

If you can get in trouble with it, I bet WorldPay would lose 95% of their business.

chuladi




msg:631918
 3:22 pm on Dec 10, 2003 (gmt 0)

I never heard of a merchant charging you more for a "delayed capture". I would switch to Authorize.net. JMO

See Authorize.net is only the gateway, they are not the merchant account provider.

Well can you explain, how do WorldPay get away with it...charging the customers card immediately.

I don't use worldpay, I don't know how it works But if your company name appears on the customer's statement, then you are the merchant and you are liable. But if worldpay's name appears on the statement, then they could be operating like a 3rdparty payment system like PayPal.

But just don't take it that because someone does it that it must not be in the regs. If you have access to the Visa/MC regulations, or your merchant account provider does, they can verify this information.

martyt




msg:631919
 4:04 pm on Dec 10, 2003 (gmt 0)


However, they told martyt wrong. Pre Auth vs Auth Capture has NOTHING to do with the qualified rate. Having a non qualified transaction is mostly due to:

settling transaction with an authorization that is more than 7 days old (most hold for up to 30 days)
customer using a corporate, purchase or international card
not having an authorization prior to capturing funds
and other things, but it is not true that authorization only automatically means non or partially qualified rate.

After I got them to research the 3 specific transactions that didn't get the best rate, it turns out that the first two items above (stale authorizations and corporate cards) were the reason.

Of course, it's all news to me, as I'm sure they never explained that corporate cards wouldn't get the best rate when they were selling me the merchant account package...

As for the stale auths, I'll just void and re-auth if it's been more than 7 days since the original auth.

Thanks for all the insight - and I'm with the others who are puzzled as to how third-party payment processors get away with "it"...

johnroger




msg:631920
 4:09 pm on Dec 10, 2003 (gmt 0)

Yes, I know Authorize.net is the payment gateway. Mistyped. I would choose authorize.net and a merchant that didn't charge extra. I just have never heard of that.

It isn't world pay who is liable if you don't auth first then capture upon shipment. They don't control your business. It is the business owner who is responsible. World Pay or any other gateway doesn't know if you ship the goods immediately. If the business owner fails to follow the law, they are the one's who will be in trouble. Not the payment gateway.

PCInk




msg:631921
 5:01 pm on Dec 10, 2003 (gmt 0)

But how can the business owner follow the law? You can't charge the card until shipment, let's say this is seven days later when WorldPay pre-auth has timed out. You get no access to complete the original transaction and you get no information about the credit card details, so you can't reprocess it yourself. What then?

chuladi




msg:631922
 5:32 pm on Dec 10, 2003 (gmt 0)

But how can the business owner follow the law? You can't charge the card until shipment, let's say this is seven days later when WorldPay pre-auth has timed out. You get no access to complete the original transaction and you get no information about the credit card details, so you can't reprocess it yourself. What then?

That's just a downside of using a third party processor. I don't think there is any way around it. Same dilemma when using PayPal web accept, you cannot credit the card, if you cannot ship for a while or a customer has to wait for a backorder, then they have already been charged. There actually is a chargeback code for something like this where a customer can file a chargeback because you have not shipped merchandise, yet they have been charged. It really gets to people when they use debit cards because they are immediately out of the funds.

Martyt, no one ever wants to tell merchants about partially qualified and non qualified rates. But don't fret, because they are across the board. Some processors waive them for some time, but we all pay them eventually. What you DO need to look into, though, is partially qualified rates because those can eat you up more than non-qualified.

lynxer




msg:631923
 4:22 am on Dec 11, 2003 (gmt 0)

Some states ie California say you can't charge a credit card until the product has been shipped. This means first you need to authorize it, then capture it upon shipment.

Sorry if this is off topic, but could you point me in the direction of the rules or regulations that state this?
(That in California you can't charge a credit card until the product has been shipped)

Thanks in advance.

PCInk




msg:631924
 9:25 am on Dec 11, 2003 (gmt 0)

... or Visa's or Mastercard's (I couldn't find theirs)

chuladi




msg:631925
 3:18 pm on Dec 11, 2003 (gmt 0)

I don't know about the California law, because I have never heard of it, but you won't find Visa & MC regs on the internet (I mean, really). Ususally a processor will give you a booklet of the rules when you open an account, if not you can call them and have them fax it to you. But I would only expect to get it from a merchant account processor, not a third party payment service.

PCInk




msg:631926
 3:35 pm on Dec 11, 2003 (gmt 0)

OK, well if we don't have automatic access to the rules through a third-party, how can they enforce them? I mean, legally they cannot enforce non-government laws on a customer without their consent. So, for a third-party processor, it must be them who are in the wrong.

But it has to be very complicated if you cannot process until shipment. If a customer orders from you and you authorise (but not complete) the transaction for let's say 2000 and the customer has a 2500 credit limit, do you take the money now, or later - when there are not enough funds left on the card? Or, should the merchant allocate the credit limit to you, but you phone the customer back and tell him/her the product is unavailable, but now they can't get it from somewhere else because the transaction amount is allocated to you for maybe 30 days until it times out! (Either that or you complete the transaction and refund it - thus defeating deferred billing in the first place as you will be charged a transaction fee!)

It does make sense in one way, but also it is almost impossible to implement the rule.

...and if a customer completes a transaction online through a third-party: With Visa and Mastercard rules, is it the customer that has authorised the transaction and payment, or is it the business?

lynxer




msg:631927
 3:51 pm on Dec 11, 2003 (gmt 0)

It's funny you say that chuladi.
I just read (in the Verisign Payflow Pro developer's maual) that both Visa and MasterCard don't allow capturing of orders until they are being shipped.
Right before that, I spent about a half an hour on Visa's site reading the "For Business" and e-tailer's sections, and didn't see a word mentioned. :o

martyt




msg:631928
 4:28 pm on Dec 11, 2003 (gmt 0)

But it has to be very complicated if you cannot process until shipment. If a customer orders from you and you authorise (but not complete) the transaction for let's say 2000 and the customer has a 2500 credit limit, do you take the money now, or later - when there are not enough funds left on the card? Or, should the merchant allocate the credit limit to you, but you phone the customer back and tell him/her the product is unavailable, but now they can't get it from somewhere else because the transaction amount is allocated to you for maybe 30 days until it times out! (Either that or you complete the transaction and refund it - thus defeating deferred billing in the first place as you will be charged a transaction fee!)

It's not nearly so complicated as you think. When you do the authorization, you're essentially 'reserving' the funds from the customer's credit card account. Those funds are not available for the customer to use, and if you settle the transaction within the "allowable" timeframe (7 days as we've found out), you're guaranteed to get the funds. If you end up cancelling the order, you're supposed to go void the authorization, else you leave the customer's funds tied up and unavailable to them.

It's not entirely clear to me what happens when you settle an "old" authorization -- I do know that the discount rate goes up (that's what started this whole thread) - and I've never been "denied" settlement on a stale authorization, but I'm also not certain that the successful settlement of a stale auth is guaranteed.

You do pose an interesting question regarding the third-party payment processors - is it the customer who initiates (and consents to) the charge when they pay with PayPal or WorldPay or whatever? And if so, does that alleviate the responsibility on the seller to ship goods in a timely manner?

chuladi




msg:631929
 5:01 pm on Dec 11, 2003 (gmt 0)

OK, well if we don't have automatic access to the rules through a third-party, how can they enforce them? I mean, legally they cannot enforce non-government laws on a customer without their consent. So, for a third-party processor, it must be them who are in the wrong.

I'm not saying that you don't have access to the rules. What I am saying is that I doubt a company like PayPal or such would be able to tell you about them.

Anyhow, I don't know how world pay works. I don't know if they work like paypal whereas they have their own method of epayment, or if they act like a merchant account. I don't use it. But what I DO know is that the regulations are never made publicly available on a website and are usually in the documentation you get when establishing a merchant account.

If they are like PayPal where the customer pays PayPal and PayPal pays you, then you might not be subject to the regs as a customer is making a "quasi cash" transaction with PayPal. But PayPal can create their own rules about the shipment of goods.

But if they operate like a merchant account, just saying "If I don't know the rules, I am not liable" doesn't cut it. You can go along denying that these regulations exist and not liking them, or passing the responsibility on to another party, but they do exist for visa/mastercard merchants, along with a host of other regulations (such as cardholder security) of which you may not be aware of (for whatever reason) but may be subject to.

chuladi




msg:631930
 5:08 pm on Dec 11, 2003 (gmt 0)

And they can enforce rules on you. A merchant is not like a consumer, and businesses do not have the consumer protection laws to their advantage. Most of the time, by signing (or agreeing to) the terms of service and continuing to accept the card(s) you are subject to regulations, even when they change.

For instance Visa recently implemented a cardholder information security guidelines with which merchants must comply. You don't get to keep accepting visa and say "you can't enforce these rules because I did not consent." Continuing to accept payment constitutes acceptance of the accompanying regulations.

lynxer




msg:631931
 5:47 pm on Dec 11, 2003 (gmt 0)

martyt, I read your post:

Those funds are not available for the customer to use, and if you settle the transaction within the "allowable" timeframe (7 days as we've found out), you're guaranteed to get the funds. If you end up cancelling the order, you're supposed to go void the authorization, else you leave the customer's funds tied up and unavailable to them.

and got very worried about the cart a customer is using.
I just had a chat with a support person at, let's say, "A" company, my client's card processing gateway:

Lynxer: Our shopping cart doesn't reuse the authorization number when it captures an order and in fact, re auth / captures the order. I am seeing all these Auth / Pending, but I'm thinking I should probably void the settled orders so as to not cause a problem for our customers by keeping a chunk of their money tied up. (Since the orders have been otherwise settled)
Their Support Guy: Have you contacted your cart support on this yet?
Lynxer: Should I manually void the Auth/Pending if the order has been Authorization w/ Auto Capture so I don't keep their funds tied up until we re-program the cart?
Their Support Guy: voids do not remove authorizations, they simply prevent transactions from being deposited into your account
Lynxer: So I don't need to or shouldn't void the Auth/Pending for orders that have gone through the Authorization w/ Auto Capture process?
Their Support Guy: If you are trying to release the funds back into the customers account you need to contact the card issuer
Their Support Guy: Otherwise the authorizations expire in 15-30 days
Lynxer: So what should I do with all the Authorized/Pending Capture entries in my "unsettled transactions"?
Do I just leave them untill they disappear?
Their Support Guy: Well they will sit there for 30 days. You can void them so they don't clutter up things, but again the authorizations will remain on the customer's card.

I'm more confused than ever..

chuladi




msg:631932
 6:44 pm on Dec 11, 2003 (gmt 0)

I think the tech guy gave you confusing ingo. An authorization temporarily holds funds from a customer's available credit line when it is a credit card. When it is a debit cart an authorization removes money from the customer's available balance. Voiding a credit card authorization releases that "avalable credit" to the customer (once the void is processed). However, voiding a debit card transaction does not have the same effect because individual banks choose when they release those funds back to the customer, and it can be days OR LONGER.

So, if you have a cart that authorizes then authorizes and captures when you settle, with debit card customers, they can be out of the money twice until the hold from the initial authorization is released, whenever that may be.

Lynxer: So I don't need to or shouldn't void the Auth/Pending for orders that have gone through the Authorization w/ Auto Capture process?

But here is where you have me confused. If you do auth with auto capture (which I am assuming is authorize.net because this is how they phrase it) those transactions stay in capture pending settlement until your orders batch settle (whenever that time is that you have set).

Now if you are saying that when the customer checks out they get auth only and then when you ship it does an auth.auto capture, your software should not be doing that twice. It should just capture funds when you specify, not auth again.

Anyhow, it is always good to void any duplicate transactions instead of letting them expire. Because if they are still sitting in "unsettled" transactions, someone can accidentally settle again, AND it makes auditing your transactions a little harder when there are so many expired transactions, it's hard to know if you really missed settling a legit transaction or if it was a duplicate.

PCInk




msg:631933
 7:46 pm on Dec 11, 2003 (gmt 0)

>> void the authorization

I have agreements with WorldPay and NetBanx and neither allow you to void a transaction. This is where it get complicated.

>> Most of the time, by signing (or agreeing to) the terms of service and continuing to accept the card(s) you are subject to regulations, even when they change.

But signing up with Netbanx and WorldPay, you are not agreeing with Visa and Mastercard regulations but to NetBanx and WorldPay which do not state about charging later. If fact, NetBanx charge the card immediately - there is an option to hold the transaction open for 3 days, but this costs an extra monthly fee.

>> And they can enforce rules on you. A merchant is not like a consumer, and businesses do not have the consumer protection laws to their advantage.

That is not entirely true. You still have to agree (with a signiture normally) which they have not got. WorldPay and NetBanx have the signitures and there terms do not state what you say Visa and Mastercard state. Then, they have to keep you up to date with changes in the same way credit card companies have to write to you with new terms, the same way UK banks have to inform you of changes to interest rates. And then I do not have a merchant number, it is through WP and NetBanx - so are they liable as the transactions are through their merchant numbers?

I still don't think it iss enforcable, though: You order something up, the customer is informed it will take four weeks to deliver, the customer cannot be charged until dispatch. One week in advance you enter the card details for a pre-authorisation and ... oh ... the card expiry date has expired ... now what? This is where it gets complicated.

Do you see? There has to at least be some exceptions to the ruls. The rules just don't work in all cases.

chuladi




msg:631934
 8:17 pm on Dec 11, 2003 (gmt 0)

As I said before, I do not use world pay or other third party processors, so I do not know if they are considered a merchant account acquirer OR a payment service like paypal where the transaction is with THEM and not the merchant. So, you're arguing a moot point. If they are a merchant processor/acquirer, then you ARE subject to visa/mc regs whether you know what they are or not. If they are comparable to PayPal, then *you may not be* as the customer's transaction could be like a cash transaction.

Secondly, if you have special order merchandise or custom merchandise or a condition where the customer *agrees up front* that it may take longer to ship, then it is okay to charge at the time of sale. If, however, a customer places an order, then you find out you are backordered, yes you could very well get in trouble for not shipping timely. In addition, there are mail order laws as well that US merchants have imposed by both the federal government (FTC) and state governments that dictate shipment of goods.

Now, if you want to start stating that because you do not have a direct merchant account you are not subject to Visa/MC regs, well you are. And let me give you one example where you most certainly are subject to their regulations-- chargebacks. So, let's use paypal for example where they have their "rules" about what constitutes delivery of goods. You ship with delivery confirmation or tracking, but you have no signature. PayPal says delivery confirmation is sufficient proof of signature. Visa/MC/Customer's Issuing bank says, no gotta have a signature. Whose rules trump? Visa/MC, not PayPal.

So don't take your third party processor's rules as gospel. It's far more complicated than that.

PCInk




msg:631935
 8:49 pm on Dec 11, 2003 (gmt 0)

All I am asking is a simple question: How can a Visa authorised company (one who Visa will recommend that you use) not abide by their rules?

It does seem like a bit strange.

Maybe third-party companies get a different set of rules to full-merchant accounts? Maybe I am allowed to charge immediately, but you are not? I don't know, because obviously I have never seen their rules on either side, but it could differ I suppose. Particularly as merchant accounts get a quick payment, but third-party payment processors usually take a lot longer (WorldPay are 4 to 6 weeks for payment).

chuladi




msg:631936
 9:40 pm on Dec 11, 2003 (gmt 0)

All I am asking is a simple question: How can a Visa authorised company (one who Visa will recommend that you use) not abide by their rules?

Because IF they operate like a 3rd party payment system, the transaction with the customer is with them and not you. Kind of like how I can go to western union and wire you money and pay for the wire with my credit card.I have used a credit card with western union, but a wire with the merchant.

That's all I am saying. I don't know how world pay specifically operates.

martyt




msg:631937
 10:53 pm on Dec 11, 2003 (gmt 0)

third-party payment processors usually take a lot longer (WorldPay are 4 to 6 weeks for payment).

I know it's waaay off topic, but how in the world can you run a business with a 4 to 6 week lag in getting payment for your service or product?

It annoys me that it takes 3 or 4 days to get my money through my merchant account. And it really put me in a pinch on the few occasions when the settlement has been delayed for a couple of days (and it *never* seems to be authorize.net's fault...)

Maybe my business is more closely tied to cash flow than most, I dunno. But I'd sooner give my stuff away than wait a month to get my money...

PCInk




msg:631938
 9:16 am on Dec 12, 2003 (gmt 0)

4 to 6 weeks would be a problem? Then there may be a problem with your way of business. You obviously haven't saved up a working capital (or do not have accounts with most of your suppliers).

The way I work is I have business accounts with suppliers and I generally pay them between 4 and 8 weeks after the service or goods are delivered. I get paid 4 to 6 weeks, but sometimes I need to pay suppliers before the 4 to 8 weeks (if I go over an agreed credit limit, for example, I need to pay it off before they'll send me more goods).

So it works both ways, delay from customers and delay to suppliers. You will need to seriously reconsider your business plan if you ever wish to get into B2B as getting paid in 4 weeks is deemed 'like lightning', 8 weeks is about 'normal', 12 weeks is a 'little slow' and 16 weeks is getting 'overdue' ;)

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