Definition
Payment settlement is the final step in the card payment process, where the funds from a customer’s bank account are transferred through the payment network and deposited into the merchant’s account. It marks the completion of the financial transaction after authorisation has already occurred at the point of sale.
Settlement vs Authorisation
Settlement is distinct from authorisation. When a card is tapped or inserted, the transaction is authorised: the customer’s bank confirms that the funds are available and places a hold. However, the actual movement of money happens through a separate, batch settlement process that typically runs at the end of each business day.
Settlement Timelines
The settlement cycle varies by payment provider and account type. Most Australian EFTPOS and card payment processors settle within one to two business days. Some providers offer next-day settlement, while others settle on a three-day cycle. Weekend and public holiday banking delays can push settlement times out by an additional day.
Net vs Gross Settlement
Settlement amounts are typically net of processing fees: the total value of completed transactions minus the processor’s fees. Alternatively, some providers settle gross and invoice the fees separately at the end of the month, which gives the merchant a cleaner view of gross revenue in daily transaction records.
How Chargebacks Affect Settlement and Cash Flow Planning
Chargebacks and refunds affect the settlement process. A refund reduces the net settlement amount for the period in which it is processed. A chargeback, once upheld, results in funds being pulled back from a future settlement batch, along with the chargeback fee charged by the processor.
For businesses managing cash flow carefully, understanding the settlement cycle is important. A retailer who sees a busy Friday and Saturday needs to know when those funds will actually land in the bank account, especially if payroll, rent, or supplier payments are due early in the following week.