An authorization only (auth only) transaction is a special category that protects the merchant by assuring that the customer's card limit is high enough to cover the transaction. This type of sales transaction puts a hold for the amount of the sale on the card's available limit. The transaction does not settle for several days or weeks.
A typical scenario for an auth only transaction is when a customer wants to purchase an item that is temporarily out of stock. The order is placed and held until the item is back in stock. At that time the merchant settles the transaction by charging the customer’s card and delivering the merchandise and receipt.
A merchant may also do an auth only transaction when the exact amount to be charged to a card is not known, as is typical in the hospitality industry. For example, when a guest checks in to a hotel, their card is usually authorized for an amount greater than the length of the stay they have booked. This is to cover incidentals like internet and phone charges, room service and in-room movies that the guest may charge to their room. When the guest checks out, the final amount is tallied, the card is charged and the transaction is settled.
Auth only transactions usually carry an expiration date, and the funds are held for a certain length of time. Once the expiration date is reached, the authorization ends and the funds are returned to the customer's available credit.
Merchants should be aware that if an authorization only transaction is not settled within 24 hours, the transaction can be downgraded to a different rate category and a small surcharge fee may be applied. However, many merchants feel that the benefits of having a guaranteed payment outweigh any minor costs.
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