How Batches, Settlement, and Getting Your Funds Work in Credit Card Processing

Batches and Settlement in Credit Card Processing

When you accept credit cards as a merchant, batches and settlement are important processes that occur daily to get your funds. When a customer pays with a credit card, banks communicate in real-time, but funds do not transfer in real-time. A batch and settlement process needs to happen to receive your funds.

What is a Batch in Credit Card Processing?

A batch is a set of transactions that have been approved for the day. These transactions still need to be submitted to the payment processor for settlement. Typically, a merchant’s batch is automatically submitted at 6pm each day. As a merchant, you can customize the time your batch is submitted or even set it so you can manually submit the batch each day.

How Batches Work in Credit Card Processing?

A physical storefront merchant would normally submit their batch after their store closes for the day. Online merchants will just choose a time each day to submit the batch. It only takes a few seconds to submit a batch. On a credit card machine, you go into the main menu and click “submit batch.” It is a similar process for online merchants, however they simply log into their payment gateway. It is most common for online merchants to have their batches automatically submitted each day.

After a merchant submits the batch, the authorization codes for every credit card transaction is sent to its payment processor and then they are sent to and categorized by the issuing bank. As a reminder, the issuing bank is the bank that gave the consumer their credit card. Each of the issuing banks prepare those transactions for settlement.

What is a Settlement in Credit Card Processing?

A settlement is essentially the process for a merchant to receive their funds of their submitted batch. After a batch is submitted, the payment processor sends the transaction to the issuing bank. The issuing bank verifies the transactions. After the transactions are verified, the funds are sent to the payment processor and then they are sent to the merchant. Funds are transferred using EFT (electronic funds transfer) which are bank-to-bank transfers.

The settlement process generally takes 1 to 3 days, however some payment processors take up to 7 days. Clearly Payments aims to send funds to merchants in less than 24 hours and many times on the same day.

What is the Difference Between Gross and Net Settlement?

With some payment processors, merchants have the choice of gross settlement or net settlement. This is primarily a convenience option for merchants depending on how they like to do their accounting.

In gross settlement, the total amount that a merchant processed will be deposited into their bank account for that day. The credit card processing fees for the transactions will then be withdrawn from the merchants bank account separately. 

In net settlement, merchants will receive the total amount a merchant processed minus the credit card processing fees.