How Credit Card Payments Work:

Authorization & capture: a two step process

Charging a customer's credit card always occurs in 2 steps:

Step 1: Credit Card is Authorized

When a customer places an order, we first authorize their credit card. This means we ensure the credit card is valid and has sufficient funds for the dollar amount in question.

Step 2: Credit Card is Captured

This occurs when an order is closed in Direct Ordering, which depends on your backend settings for each store and revenue center. Orders are closed in Direct Ordering when an order is sent to your POS, which can be done either automatically or manually. For non-catering orders, automatic closing is by far the most popular option.

When an order is closed in Direct Ordering, we capture the credit card authorization that occurred in step 1. This means the customer's credit card is actually charged, and the transaction will be settled by your credit card processor sometime later in the day or overnight (the settlement process is handled completely by your credit card processor so Direct Ordering is not involved - see the settlement section below for details).

In the case of ASAP orders, the authorization and capture steps occur in rapid succession, but it's still a two step process every time.

In the case of Future orders, there's more time between the authorization and capture steps, which is very helpful when orders need to be edited. In this case, we can void the original authorization and reauthorize the customer's credit card, which is A LOT more customer-friendly than charging and refunding a customer's credit card multiple times (can you imagine?).

Also, in many cases, we don't need to reauthorize a customer's credit card at all when an order is edited (see below for details).

What are the benefits of this 2 step process?

So why do we authorize and then capture transactions instead of simply charging a customer's credit card right away?

Initiating the credit card authorization process before capturing the charge is crucial for ensuring a positive customer experience. We take this approach because authorizations can be voided; captures cannot. This practice becomes particularly significant for future orders that may require multiple edits, such as catering orders. 

Without authorization, every credit card transaction would be automatically captured upon order placement. Once a transaction is captured, it becomes a permanent entry in the customer's credit card transaction history. If the customer requires modifications to the order, we would then need to refund the initial capture, leading to a separate refund entry in the customer's credit card transaction history. Consequently, each edit adjusting the order total results in two distinct transactions, creating a repeated and unnecessary administrative burden for the customer. 

Direct Ordering facilitates the modern convenience of allowing both restaurants and customers to edit upcoming orders until they are sent to the point of sale (POS). This flexibility is made possible by integrating authorizations into our workflow.

With authorizations, we can assess the availability of funds on a customer's card without triggering permanent charges. Typically, the customer would notice the authorization reflected as a "pending" charge in their credit card transaction history, signifying the transaction is earmarked but not yet permanent. Authorizing a charge and then voiding the authorization entirely removes the pending charge from the customer's credit card transaction history. This prevents the frustration that could arise from repeated charges and refunds, safeguarding customer satisfaction.

In short, authorizations prevent customers from being charged "too soon." 

When is it too late to cancel a credit card payment? 

Once a payment has been captured, it can no longer be canceled (or voided).

A payment that has only been authorized can be canceled or voided before the customer is actually charged. In the authorized state, the customer will see a "pending" transaction in their credit card transaction history. If the order is canceled or voided before the payment is captured, the customer's "pending" transaction will disappear from their transaction history, and they will never be charged. 

Related Article:  How to Cancel (Void) an Order

A payment that has been captured has already been charged to the customer and can now only be refunded, either in full or in part. Orders can be partially refunded multiple times, but you cannot reverse a refund once it is initiated. 

Related Article:  How to Process a Full or Partial Refund

When is it necessary to reauthorize a credit card?

Direct Ordering voids prior credit card authorizations only when absolutely necessary. Various order modifications made either by the customer or the restaurant, including changes in order date/time, service type, guest count, notes, etc., do not impact the order total. In instances where the order total remains unchanged, we preserve the existing credit card authorization. 

An authorization is voided only in two specific scenarios:

1. Change in Order Total

When modifying an order results in a changed order total (adding/removing items, incurring additional surcharges when changing service types, adjusting the tip amount, etc.), Direct Ordering automatically voids the original authorization and reauthorizes the new total. 

1. Merchant Account Modification

When an order is transferred to a store that has a different payment processing merchant account, Direct Ordering automatically voids the original authorization and reauthorizes the payment under the new merchant account. While most brands typically structure each store with its own distinct merchant account, it is not mandatory. Therefore, voiding and reauthorization may not be necessary in some instances.

How it works in practice

For the majority of restaurants using Direct Ordering, a customer's order progresses through the following states in the Direct Ordering Admin Panel when a customer places an order on your Direct Ordering website or app:

1. Order enters admin panel in an OPEN and AUTHORIZED state, where it remains cancelable or editable until it is closed. 

2. Order is marked CLOSED and PAID upon being sent to your POS.

As discussed above, these two steps happen in rapid success for ASAP orders. ASAP orders are sent to the POS (and therefore closed and charged) within 60 seconds of the order being placed. So there is very little time to cancel or edit an order. Future orders are a different story: you have ample time to cancel or edit an order in this case.

Side Note: The specific timing of when an order is closed and sent to your POS is determined by the configurations outlined in this related article: When will an order be sent to my POS?

Alternative approval workflow

Some restaurants may prefer to approve orders before they are officially accepted and opened in Direct Ordering (this is much more common for catering orders). In this case, the customer's order progresses through the following states on the admin panel:

1. Order enters admin panel in a PENDING and AUTHORIZED state until manual approval is granted. The order remains editable and cancelable. 

2. Once approved, the order converts to an OPEN and AUTHORIZED state and remains editable and cancelable.

3. The order is marked CLOSED and PAID upon being sent to your POS.

Related article:  How to Require Restaurant Approval for Catering Orders

In short, Direct Ordering closes and charges the order when we send it to the POS. 

Uncharged orders: when credit card capture fails

It happens rarely, but the capture phase occasionally fails because the payment processor prevents us from capturing the original authorization. This typically stems from a temporary issue with the payment processor, and attempting to capture the transaction at a later time usually results in a successful capture. If not, you'll need to reach out to the customer to collect payment outside of Direct Ordering.

A payment error like this would cause the order to remain in a CLOSED state (and thus be sent to your POS by default) but with an AUTHORIZED payment status. To remedy this situation, you can retry processing the payment in your Direct Ordering Admin Panel.

Please visit this related article:  How to Retry Charging an Uncharged Order

The credit card settlement process

There is one final step that happens outside of Direct Ordering: settlement. The settlement step is when money actually changes hands, and it typically happens once per day. This process involves gathering funds from card-issuing banks for all transactions captured in the past 24 hours. The accumulated settled amounts are then tallied and deposited into your bank account for reconciliation by your accounting team. That is to say, settlement is the process by which funds are transferred from your customers' bank accounts to your bank account.

Settlement is managed by your chosen payment processor and occurs at a predetermined settlement time specified within your merchant account.