How Next Day Funding Helps Merchants Eliminate the Waiting Game
The average customer might think that the second they complete a credit or debit card transaction, the funds from the purchase go directly into the merchant’s bank account – but they’d be wrong. In reality, most merchants have to wait two or even three business days to access their funds due to the standard holds imposed by most payment processors. But, while most processors force merchants to play the waiting game, some recognize that experienced and highly-trustworthy merchants deserve special consideration and faster funding. In those cases, some processors offer merchants a feature called next day funding that sees the standard hold eliminated and funds from transactions hit a merchant’s bank account as soon as the very next morning.
What is a Standard Hold?
To understand next day funding, we need to understand what standard holds are and why payment processors impose them. First and foremost, it is not an arbitrary way to hold on to funds longer. Standard holds are a risk management tool that allows processors to have the funds on hand necessary to cover refunds in cases of fraud or merchant malfeasance. When a customer is due a refund, if the merchant can’t or won’t cover it, the responsibility falls on the payment processor. Without standard holds creating a pool of available funds, processors could find themselves stuck without the liquidity necessary to cover their responsibility for mistakes or bad actors.
What the Standard Merchant Funding Process Looks Like:
Tuesday 11:00 AM: A merchant makes a credit card sale. The payment gateway queries the customer’s bank for an approval and signals the merchant’s inventory control system to release the product.
Tuesday 8:30 PM: The 11:00 AM sale, along with all of the merchant’s other sales for the day are “batched” – sent into the merchant’s payment processor together as a group to begin the settling process, a process which can easily take a day or two. Because the merchant sent the batch in after its processor’s 7:00 PM “cutoff time,” the clock on the two-day standard hold does not start until Wednesday morning.
Friday 8:00 AM: With Wednesday and Thursday covering the two-business-day hold, the funds from the 11:00 AM sale (and any other sales batched after the cutoff time) arrive in the merchant’s bank account.
How Next Day Funding Changes the Game for Experienced Merchants
Standard holds are understandably annoying for merchants, and they also negatively impact cash flow. Despite their importance, the fact they’re designed to provide protection specifically against high-risk merchants begs the question: why should established, trustworthy businesses have their funds held as long as new, unproven, or problematic ones? Many payment processors agree that they shouldn’t, and those processors offer next day funding to reward well-established merchants for their long and consistent history of good business practices.
Next day funding eliminates the standard hold and sees the funds from any transaction batched before cutoff hit the merchant’s account the morning of the next business day. Because the settlement process can often take more than a day to complete, processors aren’t just giving up their safety net to reward their merchants; they’re actually taking on extra risk by effectively fronting the money to merchants before transactions have been finalized.
What the Next Day Funding Process Looks Like:
Tuesday 11:00 AM: Once again, a merchant makes a credit card sale, the gateway confirms approval and signals the merchant to release the product to the customer.
Tuesday 8:30 PM: The merchant batches the day’s transactions. Because the merchant has access to BAMS next day funding with a 9:00 PM EST cutoff time, the batch qualifies for funding the next morning.
Wednesday 7:00 AM: The payment processor funds the merchant’s account, giving them access to the funds from the 11:00 AM sale and all other transactions batched by 9:00 PM, in some cases seeing funds arrive as little as ten hours after a sale was made. When the settlement process finishes and the funds are transferred from the customer’s issuing bank, the payment processor is effectively reimbursed.
Next day funding is extremely important to merchants because it offers them healthier cash flow and all the associated benefits that come with it, like improved abilities to forecast, plan for the future, and handle unexpected emergencies. BAMS is a leading merchant services provider that offers some of the widest access to next day funding, along with a 9:00 PM EST cutoff time – one of the most generous in the industry – ensuring more transactions qualify.
To find out more about BAMS’ next day funding, guaranteed competitive pricing, and value-added services, get started with a free comprehensive five-point price comparison today.
