Clearing and Settlement: Where Your Money Is After a Card Sale
Clearing and settlement explained day by day: who holds your money from card approval to bank deposit, and what to check when a deposit goes missing.
Photo: Pixabay
On this page 7 sections
Key takeaways
- An approval only reserves the customer's money. Nothing moves until your batch closes and the sale clears.
- The stage where a late deposit is stuck tells you which party holds the funds and who to call.
- Deposits rarely match batch totals because deductions and reserves come out first. Your funding report shows which one applied.
- Closing your batch before the processor's daily cutoff is the one timing lever fully in your hands.
After a card is approved, your money hasn't moved. It stays with the customer's card-issuing bank until clearing and settlement run, and only then does your processor send a deposit to your business bank account. Clearing is the exchange of transaction records between banks. Settlement is the transfer of funds that follows it. The deposit itself is a separate step your processor controls.
A different party holds your money at each stage, and that tells you who to call when a deposit is late. Here is one sale traced from tap to deposit, along with the places it stalls.
Authorization Is Not Payment
When a customer taps a card at your counter or types it into your checkout page, your terminal or gateway sends an authorization request. The request passes through your processor and the card network before it reaches the issuing bank, which checks the account and answers yes or no. Our explainer on card networks vs. issuing banks maps each party's role in detail.
An approval confirms the card is good for the amount and places a hold on it. A debit cardholder sees their available balance drop. On a credit card, available credit shrinks by the same amount. Not a cent has left the issuer.
Online sellers feel this most. E-commerce stores commonly authorize when an order is placed and capture the payment when it ships. Card network rules set how long an authorization stays valid, and the window differs by card brand and transaction type. If a backordered item ships after the hold has dropped off, you have to reauthorize, and that second attempt can decline. Professional services firms that pre-authorize a retainer and bill weeks later run into the same expiration problem. Ask your processor for the current authorization windows before you build a capture schedule around them.
Retail counters authorize and capture in one step. Even so, the sale waits in an open batch until that batch closes. A captured sale has not cleared yet.
What Happens During Clearing
Clearing starts when your batch closes. A batch is the set of captured sales your POS or gateway sends to your processor as one file. Modern systems close it automatically at a time you choose. Some older countertop terminals still need someone to close the batch by hand before the shop locks up.
Your processor sorts the batch by card brand and routes each transaction to its network. From there, the record goes to the issuing bank. That clearing record carries the details that price the sale, such as the card type and whether it was tapped or keyed. It also carries your merchant category code and how long after authorization you submitted the sale. This is the moment interchange fees get assigned. A sale that clears late, or without the data the network expects, drops into a costlier interchange category.
Once the issuer posts the clearing record, the pending charge on the cardholder's statement becomes a posted transaction. Money still hasn't moved.
How the Credit Card Settlement Process Moves Funds
Settlement is where money changes hands. For each settlement cycle, the network nets out what every issuer owes and what every acquirer is owed across all cleared transactions. Issuers pay their net amount through the network's settlement arrangement and keep the interchange on each sale. What's left goes to your acquiring bank, the bank that sponsors your merchant account.
Here is the one-line answer to what payment settlement is: it's the point where your sale stops being the issuer's money and becomes your acquirer's obligation to you. Our guide to the difference between a processor and an acquirer explains why those are often two separate companies.
Because settlement runs bank to bank, it follows banking days. That single fact explains most weekend delays.
Settlement vs. Funding: Why They Differ
Settlement ends with the money at your acquirer. Funding is a separate step: your processor sends that money to your business bank account, normally by ACH. Your processor and your merchant agreement set the funding schedule. Visa and Mastercard don't. That's why two shops taking the same cards get paid on different days.
Deposit amounts also differ from batch totals. Four things shrink a deposit:
- Refunds processed that day
- Chargebacks and the fees attached to them
- Processing fees, on accounts that deduct them daily instead of billing once a month
- Reserves or holds placed by the processor's risk team
Take an illustrative case. A retail store closes its day's batch and issues one refund that same day. If the account bills fees monthly, the deposit equals the batch total minus the refund, and the month's fees come out in a single debit early the following month. If the account deducts fees daily, the deposit is that net amount minus the day's fees. Both setups are normal. Neither deposit will match your POS sales report to the penny, so tell your bookkeeper which one you're on. Our guide to recording refunds and chargebacks in your accounting covers the reconciliation side.
Two more funding details are worth knowing. If you accept American Express under a direct agreement with Amex rather than through your processor, those sales arrive as a separate deposit on Amex's schedule. Faster funding, where a processor offers it, is that processor's product with its own terms and fees. It is not a network rule.
Clearing and Settlement Day by Day: One Sale Traced
This table follows a single sale through a typical week. Every assumption is illustrative. The store's POS auto-closes the batch in the evening, before the processor's daily cutoff. The processor funds by ACH on the business day after settlement, and no bank holiday falls that week.
| When | What happens | Who holds the money |
|---|---|---|
| Tuesday afternoon | Card tapped, sale approved | Issuer (customer's funds on hold) |
| Tuesday evening | Batch closes before cutoff and goes to the processor | Issuer |
| Tuesday night | Clearing records reach issuers; interchange assigned | Issuer |
| Wednesday | Network settles; acquirer receives funds minus interchange | Acquirer |
| Wednesday night | Processor sends the ACH credit | In transit |
| Thursday | Deposit posts to your account | You |
Move that sale to Friday night or the weekend and the timeline changes. The transaction may clear over the weekend, but it settles on Monday, the first banking day, and the deposit arrives Tuesday. If Monday is a bank holiday, add a day to each step after the sale.
Cutoff Times and Non-Banking Days That Stretch the Settlement Timeline
Your processor sets a daily batch cutoff, and a batch that closes after it rolls into the next day's cycle. A shop whose batch auto-closes an hour after the cutoff gets every deposit a day later than it needs to. Ask your processor for the exact cutoff, including the time zone, and set your auto-close to land before it. An open batch is the one delay entirely in your hands. A batch that never closes never clears.
Standard ACH and interbank settlement don't run on weekends or federal bank holidays. Networks clear transactions on those days, but funds wait for the next banking day. A holiday weekend rolls several days of sales into one midweek deposit, and that lumpiness matters if you run payroll on Mondays.
Your own bank adds the last bit of delay. Once the ACH credit arrives, your bank decides when it becomes available to spend. If your cash planning depends on it, ask the bank whether incoming ACH credits post in the morning or later in the day.
For more on deposit timing alone, see our guide on how long credit card deposits take.
How to Track a Missing Settlement
When a deposit is late or short, work through these steps in order. You can check the first three yourself with your terminal and your processor's portal.
- Confirm the batch closed. Pull up the batch report on your terminal or POS. If transactions are still sitting in an open batch, close it now, and they will clear in the next cycle.
- Match the batch to your funding report. Your processor's merchant portal lists each deposit with its batch date and amount. Search for the missing batch by date, not by the dollar figure you expected.
- Look for deductions. Refunds and chargebacks shrink a deposit, and so do fee debits and new reserves. On a slow day when deductions exceed sales, there is no deposit at all. Depending on your merchant agreement, the processor either nets the shortfall against your next deposit or debits it from your business bank account, so keep enough cash there to cover it.
- Check for a risk hold. A ticket far above your normal size can trigger a review. The first batch on a new account can too. Professional services firms that key large invoice payments run into this more often than counter-service retail does. Your processor will tell you what documentation releases the funds, such as the invoice or a signed client agreement.
- Verify your bank account details. A recent account change holds up funding while the new account is verified. A deposit sent to a closed account comes back as a return.
- Call with specifics. Give your processor your merchant ID and the batch date, then ask for the deposit's ACH trace number. Your bank uses that number to find the deposit on its end.
If steps four through six keep coming up, compare how other providers handle funding. Before you sign with anyone, get the batch cutoff in writing and ask whether fees come out daily or monthly. Our list of questions to ask a payment processor covers these and more. To see how MannyPay would set up in-store retail payment processing or online payment acceptance for your business, request a free processing quote. A specialist responds within one business day.
This week, pull last month's funding report and match every deposit to its batch. Any deposit you can't match is your first question for your processor.
This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.
