What it means
Every card sale involves two separate steps. Authorisation happens in seconds and simply confirms the card is valid and the funds are available, placing a hold on the customer's account.
Capture, or settlement, is the step that actually requests the money, and in a batch model that step is deferred until the batch closes. Merchants batch because it is cheaper and simpler.
Processors charge fees for submitting a batch, and grouping several hundred sales into one submission costs far less than submitting each sale separately. Batching also gives the business a clean daily cut-off, which makes reconciliation against the till or the accounting system straightforward.
Timing is the part that affects cash flow. Most processors have a daily cut-off time, and a batch closed after it is treated as the next day's business, adding a day before funds arrive.
A restaurant that closes its batch at 2am may find that a Friday night's takings settle as Saturday trade and only reach the bank on Tuesday. Batching also creates a useful window for corrections.
Because the money has not yet been captured, a mistaken sale can often be voided before the batch closes, which costs nothing and never appears on the customer's statement. Once the batch has gone, the same correction becomes a refund, which is slower and usually incurs fees that are not returned.
The trend in payments is towards more frequent batching and, for some processors, near-continuous settlement. Merchants that need faster access to cash can often negotiate multiple daily batches or same-day funding, though these normally carry a higher fee.
The right answer depends on whether the business values the cash timing more than the cost.
In practice
Real-world examples.
Example
A hair salon closes its batch every evening at 7pm. Because the processor's cut-off is 8pm, the salon's takings are always treated as same-day business and reach the bank on the second working day, which the owner relies on when scheduling supplier payments.
Example
An online retailer only captures card payments when goods are despatched rather than when the order is placed. Orders authorised on Monday but shipped on Wednesday therefore settle in Wednesday's batch, which keeps the settlement report aligned with the revenue recognised in the accounts.
Example
A festival food stall trades for three days with a portable terminal and forgets to close the batch on the final night. The authorisations expire before capture, roughly $2,100 of sales fall out of settlement entirely, and the operator has to contact the processor to try to re-present them.
Formula
Calculation
Net settlement = gross card sales - refunds - processing fees, where processing fees = (discount rate x net sales) + (per-transaction fee x number of transactions) + batch fee.
A cafe closes one day's batch. It processed 340 card sales averaging $42.00 each, and issued $580 of refunds during the day.
Gross card sales = 340 x $42.00 = $14,280. Net sales after refunds = $14,280 - $580 = $13,700.
The merchant agreement charges a discount rate of 2.6% of net sales, $0.10 per transaction and a $0.25 batch fee.
Discount rate charge = 2.6% x $13,700 = $356.20.
Per-transaction charge = 340 x $0.10 = $34.00.
Batch fee = $0.25.
Total processing fees = $356.20 + $34.00 + $0.25 = $390.45.
Net settlement deposited = $13,700 - $390.45 = $13,309.55. The effective all-in cost is $390.45 / $13,700 = 2.85% of net sales, meaningfully above the headline 2.6% rate once the fixed charges are included.Case study
Seen in the real world.
This is a fictional, illustrative example. Cobbleside Grill, an invented bistro, kept running short of cash on Tuesdays even though weekend trade was strong. The owner assumed the card processor was slow and spent two months complaining about it.
The real cause was the batch cut-off. Staff closed the terminal batch at around 1:30am after the kitchen had been cleaned, and the processor's daily cut-off was midnight, so every Friday and Saturday night was submitted as the following day's business. On a typical weekend of $9,400 in card sales, this pushed the funds back by a full working day and, because of the weekend, often by three calendar days.
Moving the batch close to 11:30pm and running a short second batch for late covers fixed it, at a cost of one extra batch fee per night. The illustrative lesson is that the settlement delay merchants complain about is often self-inflicted rather than a failing of the processor.
Watch out
Common mistakes.
- Assuming an approved authorisation means the money is already on its way, when nothing moves until the batch is captured and settled.
- Leaving the batch to close automatically after the processor's daily cut-off, quietly adding a day to every deposit.
- Reconciling the bank deposit against gross sales rather than net of refunds and fees, then treating the difference as a missing payment.
Questions
People also ask.
What happens if a batch is never closed?
Authorisations expire, usually within a few days, and the sales fall out of settlement unless the merchant re-presents them with the processor's help.
Can I still cancel a sale after the batch closes?
Not as a void; you must issue a refund, which takes several days to reach the customer and normally does not return the original processing fees.
Does batching more often cost more?
Usually a small amount per batch, so the question is whether faster access to cash is worth more than the extra fees.
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