Settlement & Reconciliation
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Prerequisites
Before diving into settlement, understand:
- Authorization and capture flow
- Payments metrics you should track
TL;DR
- Settlement = When card networks/banks actually move money between accounts (T+1 to T+3)
- Funding = When your processor deposits money in YOUR bank account
- Reconciliation = Matching what you sold vs. what you got paid (they won't match exactly due to fees, chargebacks, timing)
- Deposits ≠ sales. Understand the fee waterfall: interchange + assessments + processor markup
Popular in This Section
- Settlement Lifecycle - The 6 phases from capture to funding, including clearing vs settlement
- Reconciliation - Three-way matching, common discrepancies, and automation strategies
- Money Flow & Fees - Who pays whom, interchange breakdown, net vs gross settlement
- Settlement Timing - Batch cutoffs, weekend delays, and faster funding options
Overview
Authorization approves a transaction. Capture commits to it. But neither of those steps actually moves money. That's settlement, and it's where most people's understanding of payments gets fuzzy.
When you tap your card at a coffee shop, the $5 doesn't teleport from your bank account to theirs. It goes on a journey through multiple institutions, gets bundled with thousands of other transactions, passes through clearing systems, has fees extracted at every step, and eventually lands in the merchant's bank account, usually 1-3 days later.
Understanding this journey matters because:
- For merchants: Your cash flow depends on it. A Friday sale might not hit your bank until Tuesday.
- For fraud teams: Chargebacks can arrive weeks after settlement, clawing back money you thought was yours.
- For finance teams: Reconciling what you sold against what you received is harder than it sounds.
Settlement Topics
🔄
Settlement Lifecycle
The 6 phases from capture to funding, plus clearing vs settlement distinction
💸
Money Flow & Fees
Who pays whom, interchange breakdown, net vs gross settlement
⏰
Settlement Timing
Batch cutoffs, weekend delays, same-day and instant funding options
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Reconciliation
Three-way matching, common discrepancies, automation strategies
Quick Reference: Settlement Timeline
| Scenario | Captured | Batched | Settled | Funded |
|---|---|---|---|---|
| Monday 2pm, 5pm cutoff | Monday | Monday 5pm | Tuesday | Wednesday |
| Monday 6pm, 5pm cutoff | Monday | Tuesday 5pm | Wednesday | Thursday |
| Friday 2pm, 5pm cutoff | Friday | Friday 5pm | Monday | Tuesday |
| Friday 6pm, 5pm cutoff | Friday | Monday 5pm | Tuesday | Wednesday |
Quick Reference: Common Fee Ranges
| Fee Type | Typical Range | Who Receives |
|---|---|---|
| Interchange (debit) | 0.05% + $0.21 to 0.80% + $0.15 | Issuing bank |
| Interchange (credit) | 1.50% + $0.10 to 2.50% + $0.10 | Issuing bank |
| Network assessment | 0.13% to 0.15% | Card network |
| Processor markup | 0.10% + $0.05 to 0.50% + $0.10 | Your processor |
| Effective rate (total) | 2.0% to 3.5% | All parties |
Next Steps
Just learning settlement?
- Start with Settlement Lifecycle → Understand the 6 phases
- Then Money Flow → See where fees go
- Finally Reconciliation → Match your books
Optimizing cash flow?
- Settlement Timing → Understand cutoffs and delays
- Holds and Reserves → Why funds get held
- Payout Strategy → Faster funding options
See Also
- Authorization and Capture - Transaction flow
- FX and Settlement - International settlement
- Chargebacks - Dispute impact on settlement
- Reading Statements - Fee breakdown
- Interchange - Fee structures