What Happens if Credit Card PreAuth Is Not Followed by Completion?

Q - I previously "Pre-authorized" a credit card in Elliott. When I shipped the order, I used the "Sales" transaction instead of "Complete."  That seems to work fine.  So my question is what happens if I don't use the "Complete" transaction after the "Pre-Authorization"?

A - It still works.  The difference between PreAuth + Sales vs. PreAuth + Complete is subtle. In most situations, you don't notice the difference.  The following are the differences between these two approaches:

Customer Credit Limit
Each credit card comes with a credit limit. When you use PreAuth + Sales, the customer's credit card is allocated twice.  For example, say the credit card has a credit limit of $2,500.  If you PreAuth it with $1,000, and follow with a sales of $1,000, the credit limit left for the credit card is $500.  Now, if the customer wants to purchase something that's over $500, their credit card may be declined.  When this happens, you may have an unhappy customer.  

This is especially an issue because most of the customers can log on to their credit card Web site portal nowadays. They will see two $1,000 transactions pending from your organization.  Only one will go through and the other one (the PreAuth) will eventually disappear 7 days to 30 days later, depending on the credit card processor.  But in that 7 to 30 day time period, your customer may notice this duplicate "double charge" and call you to complain about the mistake.

Transaction Fee
With Elliott Business Software, we recommend that our users use Payware Connect as the payment gateway portal.  Even if your merchant service provider absorbs the Payware Connect transaction fee on your behalf, you should be aware that Payware Connect is not a free service. On the retail level, a Payware Connect transaction fee can range from $0.03 to $0.08, depending on your volume.

When you use the PreAuth + Sales pair to process a single credit card transaction, it is considered by Payware Connect as two transactions.  On the other hand, if you use the PreAuth + Complete pair to process the same credit card transaction, it is considered as a single transaction and therefore, only incurs a single transaction fee.  Of course, this is not a very significant amount, so you may or may not care.

Red Flag for Visa/Master
We were advised that if all your PreAuth transactions (unless they are all $0.00 PreAuth) are not followed through with a Complete pair, this could raise a red flag with Visa/Master. On the other hand, if you only have some PreAuth transactions that are not followed through with Complete, then it should be OK.

Conclusion
Overall, it is not a good idea to use PreAuth + Sales pair to complete a transaction. You should either use Sales, or PreAuth + Complete for credit card charges.

Exception: $0.00 PreAuth
The exception to the above rule are those occasions when the PreAuth is for $0.00.  In some situations, you may have a customer for whom you need to use $0.00 PreAuth to make sure the credit card is good. This includes checking the credit card number, expiration date, CVV2 and address. Once a good credit card is captured with the $0.00 PreAuth, they follow up with a sales transaction.  Since $0.00 PreAuth will not show up on customer's credit card Web site portal, nor will it allocate any credit limit from the card, some of the above-mentioned issues do not apply.  Therefore, PreAuth of $0.00 + Sales pair is considered OK to use if you don't mind the insignificant extra Payware Connect fees.

However, you should be aware of that some credit card issuers do not support $0.00 PreAuth.  In addition, some credit card processors do not support $0.00 PreAuth.  For example, First Data North (Cardnet) always approves $0.00 PreAuth transactions, even for invalid credit card numbers.  As a result, with Elliott, we always switch the $0.00 PreAuth to $0.01 if your credit card processor is First Data North.  Then this can potentially cause issues per our above discussion.


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