DIRECTADE BUSINESS RULES SERIES: CREDIT CARD AUTHORIZATION

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By Jason Solano

Directade’s Business Rules Series is taking a look at the practices, processes, and settings that help power Direct-To-Consumer and subscription businesses. Each week we’ll cover new questions related to Business Rule best practices that can can help companies optimize their sales funnel and increase customer lifetime value.

We start off this week with some questions about credit card authorization.
 

Do you authorize credit cards before accepting a new order?

A very common answer to this is “of course I obtain a pre-auth before I take an order.” However, the practice of obtaining a pre-authorization has been discouraged by Visa since 2009 (via additional fees and declines) because the typical $1.00 pre-auth is an early sign of fraudulent card-testing. Getting an authorization is still a necessity in order to verify funds prior to accepting an order, since a settlement still takes several days to process. In order to avoid potential declines, it’s important to make sure you’re obtaining the authorization for the full amount.


What do you do with new orders that do not pass credit card authorization?

Declining orders due to a failed credit card authorization may seem like the only prudent choice, but you should consider a few other options. Authorizations fail due to two primary reasons: the cardholder has insufficient funds in their bank account or they have exceeded the limit on their credit card account. What do you do next? Both of these instances are likely to be temporary. Presuming you’ve provided a feedback loop that includes asking for a different card, you might consider still taking the order. Work with your credit card processor and fulfillment center to hold the order and recycle the authorization. Re-contacting the potential customer via e-mail or an outbound call might be worth the cost and effort. Shipping the order with an open invoice is another much riskier option, so only consider that if you have excellent fraud detection rules and a tolerance for potential write-offs. Remember that your media is a sunk cost, so any recovery will quickly impact your bottom line.


Next time: How does your billing really look to your customers?