Merchant Glossary: Authorization Only Transaction

Authorization Only (Auth Only) is a special type of sale transaction. It authorizes an amount on a customers card but the item does not settle until a later time, sometime several days or weeks. The purpose of an authorization only transaction is to reserve an amount against a card holder's available credit limit for a certain period of time. For example, a merchant may perform an authorize only transaction if an item ordered is out of stock. Then when the item is in stock, the merchant will then settle the transaction, essentially charge the card at that time. Another reason a merchant may do an authorization only transaction is when the exact amount to be charged to a card is not know. This is often used in the hotel industry. When a patron checks in to a hotel, their card is authorized for an amount greater than the length of their stay. However, the transaction is not settled until check out, where the hotel may include any incidentals you may want to charge to your room. At checkout the hotel enters the actual final amount and then settles the transaction and the card is charged. One caveat is that if an authorization only transaction is not settled within 24 hours, then the transaction can downgrade to a different rate category and the merchant may be surcharged a small fee. However, the benefits of using an authorization only transaction by a merchant usually outweigh any additional costs involved, since by doing the authorization the merchant is still guaranteed payment.

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