Clearing could easily be defined as all the activities from the time a commitment is made for the transaction until it is completely settled. Moreover, it is a procedure by which financial trades settle. Basically, the entire process of clearing validates the transaction as we ensure that there are enough funds in order to complete the purchase. The transfer is then recorded before the security or the funds are delivered to the buyer's account. If clearing and settlement are discussed in banking, settlement is an actual exchange of some other value, or of money, for the securities, whereas clearing is the procedure of updating accounts of the trading parties as well as arranging for the transfer of securities and money.
Clearing in banking is the timely and correct transfer of funds to the sellers and also securities to the buyer. Clearing is extremely important as it helps match all the sell and buy orders which ensures a more efficient and smoother market. This process is beneficial because it protects the parties involved in a specific transaction by basically validating the availability of funds and by recording the details. However, when trades are not clear, the con is that the resulting trades can lead to real monetary losses. If discussed briefly a specialized organization usually acts as the intermediary known as a clearinghouse and furthermore assumes the role of tactic buyer along with the seller in order to reconcile orders between/among the transacting parties.
It is the process of moving cash or equivalent from a bank on which a cheque is drawn to the bank in which it was deposited. It is usually accompanied by the movement of the cheque to the paying bank.
If credit card clearing is discussed after acquirer receives the batch it firstly sends it through the card network where each sale is routed to its appropriate bank, then also subtracts the interchange fees which are then shared with the card network and also transfers the remaining amount through this very network to the acquirer.
The key player which are usually a part of the authorization process as well as the settlement are merchant (business), cardholder, the issuing bank which is the cardholder’s bank, the acquiring bank which is the business’ bank and the card associations (MasterCard and Visa).
It’s really crucial to understand how credit card transactions work (clearing and settlement). This most definitely occurs after the authorization process takes place. For the settlement, the merchant first sends a “batch” of authorizations to the processor, that too typically once per day. After which the processor reconciles the authorizations along with submitting the batch over the card association networks. The next step is the processor depositing the funds from those specific sales into the bank account of the business, it deducts processing fees. At that point, usually the business’s role is complete.
The issuing and acquiring banks continue to communicate and move money (with the issuing bank paying the acquiring bank for the cardholders’ purchases) and the cardholder eventually pays the issuing bank. Neither of those steps involves your business.
It is not always necessary or even required/needed to have intimate or deep knowledge, that too of the inner-workings of the bank’s bankcard system if a person is looking for the best credit card processor. However, it’s a good idea to have the required general understanding of credit cards and how credit card processing usually works as fees are always incurred at various different stages of this system.
It's Recommended to always Pay Your Credit Card Balance in Full that too Each Month, basically Leaving a balance would not help the credit score—instead it would just cost us the money in a form of interest. ... Which is why one should always try to remain under 30% utilization overall as well as on individual accounts; it is a fact that credit scores decrease much more rapidly when we exceed the percentage.
Furthermore, the processor usually deposits the funds from a person’s credit card sales into their bank accounts of business and also deduct the processing fees. However, some variations are there, on exactly how the fees are deducted, and not to forget how funds are deposited.
Credit Card Deposits
Many processors these days offer next day funding, which means that a person would receive the amount or money for today’s credit card transactions the next day or tomorrow. But an individual must “batch” the transactions by a very specific cutoff time so that they receive the funds the next day. If the cutoff is missed, the individual won’t be receiving funds until the very next business day.
Whereas in some cases, processors might hold the funds if any sort or form of fraud is suspected or otherwise even determine that a specific transaction is too risky. In those cases, an individual won’t immediately be able to see the funds.
Credit Card Fee Deductions – Discounting
The two primary methods which processors use in order to deduct credit card fees from the transactions are called daily and monthly discounting.
Daily discounting basically consists of the processor deducting processing fees every day, before depositing the funds. This means that the net sale amount would be received, or the amount after the fees, in comparison to the monthly discounting, where the processor basically deducts the processing fees for an entire or complete month’s transactions once per month but it deposits the funds daily. This means that an individual would receive the gross sale amount, or even the amount before fees, each day.