Settlement is how a business receives funds from a customer following a credit or debit card purchase.
Once a customer initiates the payment, a transaction request is sent to their bank, determining whether the transaction should be approved or denied.
After a transaction is approved, the issuing bank sends the money to the company’s payment processor, which then transfers the funds to the seller’s account after deducting its processing fees.
The time it takes for funds to process depends on the payment settlement mechanism of a business. Some authorized transactions get settled immediately, while others take hours, days, or even weeks to settle.
For example, a hotel may authorize a transaction when a customer makes a booking but will only settle it after the guest checks out. In such cases, businesses add an authorization hold which guarantees the money will be credited to their account when they settle the pending transaction.