When you check into a hotel, rent a car, or make certain purchases, you may notice a pending charge on your account that is higher than what you actually spent. This is not an error – it’s a pre-authorised payment, a common practice in many industries. Pre-authorisation serves as a financial security measure that reserves funds without immediately collecting them. Let’s take a closer look at how pre-authorisation works, where it’s commonly used, and why it has become a standard part of payment processing.
What are pre-authorisations?
A pre-authorisation (also known as pre-auth or pre-authorised payment) is a temporary hold placed on a customer’s card to verify that their account contains sufficient funds to cover potential charges. Unlike standard transactions, a pre-authorisation doesn’t transfer money immediately from the cardholder’s bank account to the merchant. Instead, it reserves the specified amount, making it unavailable for other purchases until the authorisation expires or converts to an actual charge.
Pre-authorisations function as financial guarantees, protecting businesses from potential losses when the final amount might differ from the initial estimate. This practice is common in service industries where the total cost can sometimes increase during the service period – like hotels where guests use room service or car rental companies where mileage or fuel charges apply.
The pre-auth process begins when a merchant requests permission to charge a specific amount to a customer’s credit card or debit card. The card issuer then verifies available funds and places a temporary hold on that amount, reducing the customer’s available balance without actually transferring money to the merchant’s account.
The pre-authorisation process: step-by-step
Understanding how pre-authorisation works requires looking at each stage of the transaction flow. Here’s a breakdown of the typical pre-auth process:
- Initial request. The merchant requests authorisation for a specific amount from the customer’s card.
- Verification. The payment processor forwards this request to the issuing bank, which checks if the account has enough funds to cover the pre-authorised amount.
- Temporary hold. If sufficient funds exist, the bank places a hold on that amount, reducing the customer’s available balance but not removing the money.
- authorisation code. The bank generates an authorisation code that permits the merchant to capture payments up to the approved amount within a specific timeframe.
- Service delivery. The customer receives their products or services while the pre-authorisation remains active.
- Final transaction. Once the actual charge amount is determined, the merchant submits the final bill for settlement, which can be equal to or less than the pre-authorised amount.
- Settlement. The issuing bank releases the reserved funds and transfers the final amount to the merchant’s account.
This structured approach helps businesses manage financial risk and provide services before knowing the exact cost. The entire process takes place behind the scenes, though customers may notice the temporary hold on their account.
Further Reading: The Complete Guide to Virtual Cards for Business
The pre-authorisation payment processing
Payment processing for pre-auth involves multiple parties working together to secure funds temporarily. The journey begins when a customer submits the payment method information, often through shopping cart software or a point-of-sale system.
When a business initiates a pre-authorisation, the transaction data travels through a payment gateway to the card networks (like Visa or Mastercard), which route the request to the customer’s card issuer. The bank evaluates several factors before approving or declining:
- Account status and validity
- Available balance or credit limit
- Merchant classification code (MCC) associated with the business
- Transaction amount compared to typical spending patterns
Credit card issuers and banks apply different rules when handling pre-authorisations. Some may approve transactions even when funds are slightly short, while others strictly require the full amount to be available.
Once approved, the temporary hold appears on the customer’s account statement as “pending” or “authorisation only.” This hold doesn’t represent an actual charge but reduces the available balance to prevent overspending.
What businesses benefit from pre-authorisation charges?
Pre-auth is valuable across numerous industries where final costs may vary or where businesses need financial security before providing services. The most common users include:
- Hospitality industry
Hotels regularly pre-authorise cards upon check-in to cover room charges plus potential incidentals. A typical hotel can place a hold of the room rate plus an additional percentage or flat amount to cover possible minibar purchases, room service, or facility damages.
- Transportation services
Car rental companies rely heavily on pre-authorisations to protect against vehicle damage, late returns, or fuel replacement costs. These businesses often place substantial holds – sometimes several hundred dollars beyond the estimated rental price.
- Fuel stations
When you pay at the pump, the terminal may place a standard pre-auth amount (often $50-$100) regardless of how much fuel you actually purchase. This explains why you might see a higher pending charge that later adjusts to your actual purchase amount.
- Restaurants
Many restaurants pre-authorise an amount higher than your bill to account for potential tips, especially when you open a tab.
- Activity providers
Tour operators, equipment rental companies, and other recreational businesses use pre-authorisations to cover potential damage to equipment or late return fees.
- Healthcare services
Medical facilities sometimes pre-authorise insurance copays or estimated patient responsibility amounts before procedures.
Each industry adapts the pre-auth concept to fit its specific risk profile and customer payment experience needs.
Benefits of pre-authorisation for businesses
Implementing pre-authorisation capabilities offers merchants several advantages that improve financial security and operational efficiency:
- Financial protection ranks as the primary benefit. By verifying sufficient funds before providing services, businesses reduce the risk of unpaid bills or disputes. This protection is especially valuable in industries with variable final costs or where damage may occur to rented items or facilities.
- Pre-authorisations also streamline the payment collection process. Since the authorisation already exists, converting it to a final charge requires less paperwork and customer interaction than initiating a new payment after service completion.
- For businesses dealing with high-value transactions, pre-auths provide peace of mind by confirming the customer can afford the purchase before investing time and resources in fulfilling orders or providing services.
- The system also helps with inventory management and service allocation. By securing payment authorisation upfront, businesses can confidently reserve inventory or schedule services without fear of financial losses from last-minute cancellations.
- From an operational perspective, pre-authorisations reduce the administrative burden associated with payment collection, allowing staff to focus on service delivery rather than financial transactions. This efficiency often translates to improved customer satisfaction as the checkout process becomes smoother and faster.
Benefits of pre-authorisation charges for customers
While pre-authorisations might temporarily reduce available funds, they offer several advantages for customers:
- Improved checkout experiences rank high among consumer benefits. With pre-authorised transactions, customers can receive services without needing to present payment again, creating a more seamless experience – especially in hotels or rental situations where final charges occur after service use.
- Pre-authorisations also provide clarity about potential costs upfront. Customers see the maximum amount that would be charged, helping them budget accordingly during their service period.
- For security-conscious consumers, pre-auth offers protection against unexpected or unauthorised charges. Since merchants can only capture payments up to the pre-approved amount, customers gain financial predictability.
- The process eliminates the need to carry large cash deposits that were once common in rental situations. Instead of leaving hundreds of dollars as security, customers can simply allow a temporary hold on their card account.
- When traveling, pre-authorisations simplify expense management by creating clear records of potential charges, making it easier to track and reconcile travel spending.
Further Reading: Transforming Payments Across Industries: The Strategic Edge of White Label Cards
What is the difference between a pre-authorisation and incremental and partial authorisations?
Pre-authorisation, incremental authorisation, and partial authorisation represent three distinct payment processing approaches, each serving different business needs.
Standard pre-authorisation involves placing a single hold for the estimated total amount at the beginning of a transaction. The merchant later captures the actual amount needed (up to the authorised limit) when finalizing the bill.
Incremental authorisation differs by allowing merchants to increase the authorised amount in stages. This is useful for extended services where costs accumulate over time. For example, a hotel may start with a pre-auth for the room rate, then incrementally increase it as the guest uses additional services during an extended stay.
Partial authorisation occurs when a customer doesn’t have sufficient funds to cover the full requested amount, but the card issuer authorises a portion of the transaction. This allows customers to split payments across multiple cards if necessary. For example, if someone tries to make a $100 purchase with only $75 available on their card, the issuer may approve a partial authorisation for $75, requiring the customer to cover the remaining $25 through another payment method.
Each approach offers flexibility in different scenarios, allowing businesses to match their authorisation strategy to their specific service model and customer needs.
What is the duration of a pre-authorisation hold?
The holding period for pre-authorisations varies significantly depending on several factors. Generally, most pre-authorised transactions remain active for 1-15 days, though some may persist for up to 30 days.
Card networks (Visa, Mastercard, etc.) establish baseline rules for pre-authorisation expiration, but the actual duration depends primarily on the card issuer’s policies. Most credit card pre-authorisations automatically expire after 7 days if not captured by the merchant, while debit card holds typically last 1-5 days.
When a pre-authorisation expires without being captured, the on hold funds return to the customer’s available balance. However, this process isn’t always immediate – some banks take an additional 1-3 business days to release the funds after the official confirmation of expiration.
For customers, understanding this timeline helps prevent cash flow problems, especially when multiple pre-authorisations occur close together. A weekend car rental followed by a hotel stay could potentially restrict access to hundreds of dollars for over a week, even after completing both services.
Merchants should recognize that longer holding periods, while providing more security for their business, can negatively impact customer experience. Finding the balance between financial protection and customer satisfaction remains essential for businesses that rely on pre-authorisation.
What factors affect the pre-authorisation hold duration?
Several variables influence how long funds remain restricted during a pre-authorisation period:
- The merchant category code assigned to a business significantly impacts hold duration. Financial institutions categorize businesses based on their industry and assign risk levels accordingly. Higher-risk categories typically result in longer hold periods.
- The card type makes a substantial difference – credit cards generally maintain longer holds than debit cards. Premium cards (like platinum or business accounts) sometimes receive preferential treatment with shorter hold durations.
- The relationship between the customer and their bank affects hold policies. Long-standing customers with excellent account histories may experience faster fund releases than new account holders.
- Transaction size also matters. Larger pre-authorisations typically undergo more scrutiny and may have extended hold periods compared to smaller amounts.
- Some merchants manually capture their pre-authorisations quickly after service completion, releasing unused funds sooner. Others rely on automatic expiration, which takes longer.
- International transactions often experience extended holds due to currency conversion processes and additional security measures applied to cross-border payments.
- Weekend and holiday timing can extend holds since banking systems process fewer transactions during these periods. A pre-authorisation initiated on Friday may not begin processing for release until the following Monday.
Understanding these factors helps both businesses and customers manage expectations around when funds will become available again.
What merchants need to know about pre-authorising credit cards and debit cards
Different card types require different approaches. Credit cards typically allow more flexibility with pre-authorisation amounts and durations, while debit cards have stricter rules since they directly affect customers’ available cash.
Communication transparency is essential for customer satisfaction. Clearly inform customers about:
- The pre-authorised amount
- How long funds may remain on hold
- When to expect the final charge
Follow proper storage protocols for authorisation codes. These codes serve as proof that permission was granted for the transaction and may be needed if disputes arise later.
Regularly review and update pre-authorisation policies to align with industry standards and card network rules, which change periodically.
Train staff thoroughly on pre-authorisation procedures, including how to properly cancel authorisations when services aren’t provided. Failing to release unused authorisations damages customer relationships and may violate card network rules.
Consider the impact on customers with limited funds or credit limits. Excessive pre-authorisation amounts can sometimes prevent customers from making necessary purchases while awaiting fund release.
Implement systems to track pre-authorisations and ensure timely capture or cancellation. Forgotten pre-auths that expire without proper handling create accounting complications and customer frustration.
Further Reading: Fintech Marketing Trends and Predictions in 2025
Expiration of a pre-authorisation: what to do
When a pre-authorisation expires before being converted to an actual charge, both merchants and customers face potential challenges.
For merchants, expired pre-authorisations require obtaining a new authorisation before charging the customer. The original authorisation code becomes invalid after the pre-authorisation expires, and attempting to process it may result in declined transactions or, worse, chargebacks.
If the customer is still present or easily contactable, requesting a new authorisation is straightforward. However, for services completed days before processing (common in hospitality and car rental), merchants should:
- Process charges promptly before expiration when possible
- Establish clear policies for handling expired authorisations
- Consider authorisation extensions for longer service periods
- Maintain detailed documentation of authorisation attempts
From the customer perspective, expired pre-authorisations should result in released funds, though this doesn’t always happen automatically. If funds remain held after the expected release date, customers should:
- Contact the merchant to confirm they have released the authorisation
- Provide the merchant with transaction details including date and amount
- If necessary, contact their card issuer with confirmation the service is complete
The card issuer is important in this process, as they control when funds become available again. Some banks release funds immediately upon receiving merchant notification, while others follow standard timeframes regardless of merchant actions.
Payment pre-authorisation: why it’s important
The significance of pre-authorisation extends beyond simple financial mechanics to fundamental business operations and customer relationships.
For high-value service industries, pre-authorisations form the foundation of financial risk management. Without this ability to verify sufficient funds to cover potential charges, many business models would require large cash deposits or significantly higher upfront payments. Pre-authorisations help combat fraud by verifying card validity and fund availability before providing services. The practice also creates clearer financial expectations between businesses and customers.
From a business operations perspective, pre-authorisations improve cash flow predictability. Knowing that funds exist for pending services allows businesses to manage inventory and scheduling with greater confidence. Pre-authorisation also reduces billing conflicts by establishing financial parameters early in the customer relationship. When final charges remain within the pre-authorised amount, customers are less likely to dispute them.
For customers making large purchases, pre-authorisation provides verification that their payment method works properly before they commit to a purchase, preventing embarrassing declines at critical moments.
These various benefits make pre-authorisation an essential component of modern payment systems across numerous industries.
An overview of best practices for managing pre-authorisation holds
Implementing effective pre-authorisation strategies requires balancing business protection with customer experience. These best practices help achieve that balance:
For merchants:
- Authorise only reasonable amounts based on genuine risk assessment rather than arbitrary high figures. Excessive holds damage customer relationships and may violate card network rules.
- Clearly disclose pre-authorisation amounts and expected holding periods at the transaction outset. Transparency builds trust and reduces disputes later.
- Process final charges promptly once the actual amount is known. Delays extend the impact on customers’ available funds unnecessarily.
- Implement systems to properly void unused authorisations rather than letting them expire naturally. This courtesy helps customers regain access to their funds faster.
- Train staff thoroughly on pre-authorisation procedures, especially cancellation protocols when services aren’t delivered.
For customers:
- Ask about pre-authorisation policies before presenting payment cards, especially for hotels, car rentals, and other services known for substantial holds.
- Consider using credit cards rather than debit cards for transactions involving pre-authorisations since holds on debit cards directly impact available cash.
- Keep track of pending authorisations to avoid unexpected insufficient funds situations from multiple overlapping holds.
- Budget for temporarily restricted funds during travel or when using services that typically require pre-authorisations.
Following these practices creates smoother experiences for all parties involved in pre-authorised transactions.
How Wallester can help
For businesses that rely on pre-authorised payments in their daily operations, Wallester Business provides a practical way to manage the full process – from placing holds to completing transactions. If you run a hotel, operate a rental service, manage subscriptions, or work in any sector where charges are finalised after services are delivered, Wallester gives you the control needed to handle payments clearly and efficiently.
The platform supports pre-authorisation through a secure infrastructure that fits easily into existing systems. Merchants can initiate holds, monitor their status in real time, and finalise charges once the exact amount is known. For businesses that deal with varying costs, this removes the need to follow up on missing payments or rely on manual corrections.
Wallester’s interface helps simplify payment-related tasks without limiting control. You can set custom hold durations, apply limits based on card types or merchant categories, and keep track of every action in the authorisation flow. If a hold needs to be extended, adjusted, or cancelled, all tools are accessible within one environment.
When a pre-authorisation is close to expiry, the system notifies you, helping avoid missed payments. For businesses with multiple users or departments, roles and permissions can be assigned based on access levels, keeping sensitive actions secure and traceable.
Wallester also supports compliance with current card network rules and payment handling standards. This lowers the chance of declined card payments or chargebacks due to incorrect processing – a frequent issue for companies using outdated tools.
