What is a Pre-authorization?
A transaction verifying whether the Card is valid, active, and has funds available. The pre-authorization sets funds aside, and Merchant receives an approval code freezing those funds. A pre-authorization typically sets these funds aside for 7-10 days and will drop off after this period. The specific time for which the funds are set aside varies with the Credit Card Company.
What is a Pre-authorization Capture Transaction?
A transaction that finalizes the pre-authorization transaction and charges the Cardholder when the Merchant is ready to complete the sale. Pre-authorization and Pre-authorization capture transactions are most commonly used in restaurant environments.
Chargebacks can occur when a customer is pre-authorized for a lower amount than the final charge on their check.
In order to minimize the possibility of chargebacks in Lavu, we recommend the following practices for pre-authorization procedures:
1. Pre-authorization amounts should be set to the average ticket amount.
2. Businesses are recommended AGAINST pre-authorizing pre-paid gift cards and pre-paid credit cards.
3. Businesses must correct any invalid authorizations with 24 hours of the authorization.
Businesses are protected from chargebacks by VISA, MasterCard, DISCOVER, and AMEX at the following amount:
Authorization amount + 20%
(This is why it is imperative to have an authorization amount that closely reflects average ticket amounts)
Some of the companies will be more lenient if the authorization + 20% amount is close to the entire charge amount, but AMEX adheres strictly to this policy. AMEX will do a chargeback for $0.10 if requested.