Authorization Only (Auth Only) is a special type of sale transaction. It authorizes an amount on a customer’s card but the item does not settle until a later time, sometime several days or weeks later. The purpose of an authorization-only transaction is to reserve an amount against a cardholder’s available credit limit for a certain period of time. For example, you may perform an authorization only transaction if an item ordered is out of stock. When the item becomes available, you settle the transaction, charging the card at that time.
Another reason you may do an authorization only transaction is when the exact amount to be charged to a card is not yet known. This is common in the hotel industry.
When a guest 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 checkout, when the hotel may include incidentals that were charged to the room. At checkout the hotel enters the final amount, settles the transaction and the card is charged.
One caveat is that if an authorization only transaction is not settled within 24 hours, the transaction can downgrade to a different rate category and you may be surcharged a small fee. However, the benefits of using an authorization only transaction usually outweigh any costs, since the authorization guarantees payment.
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