The B2B world is slowly, but surely, starting to move away from the use of paper checks and allowing customers to pay via credit card. As this becomes more popular, businesses are beginning to ask questions about how these credit card payments work, whether it is a secure option and how can it affect their accounts receivable department. At first glance, credit card processing can seem very complicated, but if you’re considering leaning towards this option as a new way to quickly accept payments, we’ve broken down the process for you.
Cardholder makes a purchase of a product or service using their credit card
The vendor communicates through their payment gateway or hardware solution onto their Payment Processor to request an authorization from the cardholder’s bank for an authorization of funds.
Customer’s issuing bank will verify that the cardholder’s account is in good standing and that the amount requested is within the available credit for the cardholder.
The issuing bank then holds the requested amount of funds on the credit card holder’s account.
Card issuing bank then sends a reply back to the processor with an authorization code and result for AVS, CVV and fraud various filters. This data is forwarded onto the gateway for the merchant to decide if they want to accept the transaction or not.
If all the indicators meet the merchant’s requirements, the transaction is considered approved and ready for end of day batching. At this point in the process, funds have not changed hands from the customer to the vendor. This only happens after the transactions have been successfully settled during a batch process.
Once a transaction has been properly executed and batched it is marked for the next funding transfer to be deposited to the merchant’s bank account.
Using credit card payments helps accounts receivable departments to collect payments much more efficiently. Not only are customers sending payment faster because they don’t have to write a paper check, but collectors aren’t spending so much time on the phone following up to see where the payment is. Some AR departments using credit card payments have even reported leaving voicemails for customers asking about a missing payment, only to see the payment posted via credit card in their secure payment portal moments later.