Not many accounting professionals are aware of the difference between authorized and settled card transactions. For us, it is a very important topic and it has deep accounting implications.
What is the difference between authorized and settled transactions?
There is no actual transfer of money when you pay with your card. There is only an AUTHORIZATION. The system verifies the identity of the cardholder, the authenticity of the card and the availability of funds at the time of purchase. If everything checks out, an imaginary hold is placed on the card. It reserves the amount of money for this payment.
The SETTLEMENT occurs when the money moves from your card to the merchant’s account. Depending on the merchant's system, this process could take up to 14 days.
What are the accounting implications?
There is a chance that this authorization is not cleared for a variety of reasons. This means, that the transaction was not settled and the money didn't flow. The implication is that you cannot reconcile this payment. If you have already done it because you thought that the payment went through, you will have a lot of additional work on your hands. Our goal is to make your professional life easier by taking care of mundane operational jobs. Here we strive to achieve this by keeping you save from errors. Hence, we only export settled card transactions in your reports.
Is there a way to check if a transaction is already settled?
You can verify the stage of a card transaction by following these simple steps:
Log into your Payhawk web app
Click on the Expenses tab on the right-hand menu
Select the expense you want to verify
Go to the card icon beside the button mark as review
Read the information on the transaction. You will be able to see if the card is authorized or settled
Need more help? Ping us via chat.