What does pre authorization hold mean?
Pre authorization hold, in the context of financial transactions, refers to a temporary reservation of funds in a customer’s account by a merchant before the actual transaction is processed. This hold is typically placed to ensure that the funds are available when the transaction is completed. In this article, we will delve into the meaning of pre authorization holds, their purpose, and how they impact both merchants and customers.
Pre authorization holds are commonly used in various industries, such as retail, hospitality, and transportation. When a customer makes a purchase, the merchant requests a pre authorization hold on the customer’s payment card, which could be a credit card or a debit card. The amount of the hold is usually equal to the total transaction amount or a predetermined percentage of it.
The primary purpose of a pre authorization hold is to protect both the merchant and the customer. For the merchant, it ensures that the funds are available for the transaction, which can be particularly useful for businesses that offer services or products that are not immediately delivered. For example, if a customer books a hotel room, the hotel may place a pre authorization hold on the customer’s card to ensure that the payment will be processed when the room is checked out.
On the customer’s end, pre authorization holds can be beneficial as they provide a sense of security. If the customer were to cancel the transaction or if the merchant fails to process the payment, the funds would not be deducted from the customer’s account. However, it’s important to note that pre authorization holds are not the same as pre authorization payments. While a hold merely reserves the funds, a pre authorization payment actually deducts the funds from the customer’s account.
The duration of a pre authorization hold can vary depending on the payment processor and the type of transaction. Some holds may be released immediately after the transaction is processed, while others may remain in place for several days or even weeks. It’s essential for both merchants and customers to be aware of the hold duration to avoid any potential issues.
In some cases, pre authorization holds can lead to unexpected fees or deductions. For instance, if a customer has a low balance in their account, the pre authorization hold may cause the customer’s account to become overdrawn. Additionally, some payment processors may charge merchants a fee for each pre authorization hold placed on a customer’s card.
To minimize the impact of pre authorization holds, merchants can take certain measures. They can inform their customers about the pre authorization process and provide clear communication regarding the hold duration. Moreover, merchants can carefully manage their inventory and customer expectations to ensure that transactions are processed efficiently.
In conclusion, pre authorization holds are a crucial aspect of financial transactions, providing security and peace of mind for both merchants and customers. Understanding the purpose and implications of pre authorization holds can help businesses and individuals navigate the complexities of modern payment systems. By being aware of the hold duration and potential fees, both parties can make informed decisions and ensure a smooth transaction process.
