By Jeff Zimmerman, COO, Clearent
Next day funding continues to be a hot topic in merchant services. Despite the popularity of next day funding, merchant account providers often still ask us questions about how it works. To appreciate the benefits of next day funding, it’s helpful to understand the normal funding cycle for credit card processing. I will walk through a simple example to illustrate the difference.
In normal credit card transaction processing, funds are deposited in the merchant’s account two business days after the sale transaction. For example, let’s say a ski shop sells a snowboard on Monday afternoon for $350. After the store closes at 7:00 p.m., the store manager settles the terminal (batches out). The ski shop will see a $350 deposit (net of any fees) enter its bank account on Wednesday. Let me describe what happens between Monday night and Wednesday.
During the night – early Tuesday morning in this example – the merchant services provider processes the credit and debit card transactions from the prior day, submits the transactions to the card associations, and initiates a funds transfer to deposit the money into the merchant’s bank account. The funds are transferred using the ACH network. The ACH network uses an overnight process to transfer money between bank accounts, so the funds are received one business day after they are transferred –Wednesday in this example.