Glossary
Prior Authorized Sale (Prior-Auth)
A Prior Authorized Sale, commonly referred to as a Prior-Auth, involves a transaction where authorization to charge a customer's payment card is obtained before the actual services are rendered or goods are delivered. This type of transaction is particularly common in industries where services are booked in advance, such as in hotel reservations, car rentals, and other similar situations.
In a Prior-Auth transaction, the merchant secures approval from the customer's card issuer to reserve a certain amount against the card's available credit limit. This approval is essentially a guarantee that the funds will be available when the merchant later completes the transaction, at which point the actual funds are transferred.
The process begins when a customer provides their payment card details to secure a reservation or service in advance. The merchant then contacts the card issuer to verify that the card is valid and that it has enough credit to cover the transaction. Once this is confirmed, the issuer places a hold on the required funds, ensuring that they cannot be spent elsewhere until the merchant finalizes the charge.
The main advantage of a Prior-Auth is that it provides security for both parties: the merchant is assured that they will be paid for the service or goods provided, and the customer is protected from being charged until the service is actually rendered or the goods are delivered. Additionally, it helps manage cash flow and credit risk by ensuring funds are reserved for significant transactions ahead of time.
However, if the merchant fails to finalize the transaction within the issuer's stipulated timeframe, typically a few days to a week, the authorization may expire, and the funds will be released back to the customer's available credit. To complete the sale after an authorization expires, the merchant would need to obtain a new authorization from the card issuer.