Avoiding Settlement Delays

Typical batch settling (aka “deposits”) will occur within one (1) business day of the settlement of a batch.  From time to time, however, the deposit may be delayed; that delay can last anywhere from one day to multiple days, depending on the circumstances giving rise to the delay.  What causes such a delay of deposit and why? In this article, we will examine some of the main reasons that contribute to the delay of settlement and the steps a Merchant can take to mitigate the occurrences of such delays.

What Causes Settlement Delays to Occur?

Settlement delays can occur for a variety of reasons.  While not an exhaustive list by any means as each circumstance is different, some of the most common reasons are:

1. Inaccurate boarding (i.e. inaccurate information provided to the payment processor, at the time of submitting the Merchant’s application);

2. Change in processing practices (e.g. significant deviation from how the Merchant takes payment as compared to how the Merchant used to take its payment); and

3. Significant deviation in processing volume or typical transaction size (or both).

Why Do Processors Delay Funding?

1. Improper Boarding

When a Merchant contracts with a payment processor, a number of questions are asked of the Merchant:

(i) How do you process (card present transactions using PIN? Card not present transactions, such as telephone or mail orders or E-Commerce)?

(ii) Is it a combination and if so, in what proportion?

(iii) What is the average transaction size?

(iv) What is the highest transaction size and how often does this occur, on an annual basis?

(v) What is the typical monthly volume? What is the annual volume?

Based on these (and other) answers provided by the Merchant at the time of boarding, the payment processor’s underwriting team reviews the application and decides whether to  approve or decline the Merchant’s application, and assign a risk profile to the Merchant.  Once approved, the Merchant begins processing and settling batches. However, if the transactions deviate from the responses provided at the outset, the payment processor will “flag” the account and issue temporary holds, in order to verify the transactions based on what appears to be unusual processing activity.

2. Change in Processing Practices

Where a Merchant is boarded with the understanding that they process mostly in a particular fashion (e.g. card present transactions using pad and PIN) and later, the Merchant markedly changes their method of receiving payment (e.g. card not present transactions, such as mail order or telephone order), the payment processor will flag the account for suspicious or unusual activity, based on the merchant’s profile at the time of boarding. The processor may be concerned that the activity is unauthorized or has increased the merchant’s risk to the processor, thus causing the settlements to be delayed or held beyond the typical one business day settlement period.

3. Significant Deviation in Processing Volumes or Transaction Sizes

Where a Merchant’s typical processing volume suddenly increases, or where the normal transaction size unexpectedly jumps to a higher amount than usual, the Processor will flag the batches as being suspicious and/or exceeding the risk profile assigned to the Merchant’s account. This will cause a delay to the deposit until the processor is satisfied that the transactions are proper and that there is no risk to the processor in releasing the funds to the Merchant.

How to Avoid Settlement Delays

The following represent simple steps a Merchant can take, in order to mitigate the likelihood of having a batch held.

1. Be honest and accurate. Disclose accurate information to your processor at the outset. If, after you have been boarded, you notice that your businesses’ circumstances have changed, notify your processor. If the processor is made aware, in advance, of a change of processing circumstances, the processor will make note of this and will not be caught off guard. Alternatively, the Processor may elect to re-underwrite the file to ensure smoother deposits and thereby reduce the likelihood of a batch or batches being held, in the future.

2. Be proactive. When you notice that your business is evolving to include alternate forms of payment processing (e.g. an increase in card not present transactions), notify the processor. By getting out in front of these changes and being proactive, the Merchant stands a much better chance of its batches not being held going forward.

3. Be consistent. Processing companies desire consistency. The greater a Merchant deviates from their standard, the greater the likelihood is that the batch will be flagged for review and held. As processing volumes increase or the transaction sizes increase or the frequency with which the average transaction size increases, for example, notify the processor. The more aware the Processor is, in advance, the less likely they will be to hold a batch settlement for delayed deposit. This is especially important if you know that you will be processing an exceptionally large credit card transaction, well beyond your normal volume (e.g. a $50,000.00 transaction as opposed to your normal $1,000.00 transaction).

For more information about this topic or to have a complimentary rate review for your business anywhere in Canada or the United States, call PayLite Merchant Services toll-free at 1-877-671-1635 and speak to a representative.