Settlement (payments)
Also called payment settlement, funds settlement.
The point when money for a payment actually moves into the receiver's account, after the payment was approved and cleared.
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What it is.
A card payment happens in stages. Authorization checks the card and holds the funds. Clearing exchanges the transaction details between the banks. Settlement moves the money, usually in batches and often a day or more later, minus fees.
Other payment types follow the same idea with different timing. Some bank transfers settle in seconds; others settle in batches. A payment being approved does not mean the money has arrived.
Why it matters
Products that pay out to others, such as marketplaces, payroll and lending, must not promise money they have not received. Settlement timing drives cash flow, payout schedules and how reconciliation is done.
In a product build
In a payments build, settlement shows up as order states, payout schedules, settlement report imports from the provider and the ledger entries that link them.
Common mistakes.
- 01
Paying out on authorization instead of settlement.
- 02
Expecting settlement amounts to match orders one to one. Fees, refunds and batches get in the way.
- 03
Ignoring time zones and cut-off times, which shift money into the next day.
Work it out with a tool.
Related terms.
- ReconciliationChecking that two records of the same money agree, such as your ledger and the bank or provider's statement, and explaining every difference.
- LedgerThe record of every movement of money in a system, kept so that any balance can be explained entry by entry.
- ChargebackA forced reversal of a card payment, started by the cardholder's bank after the cardholder disputes the charge.
- Double-entry bookkeepingRecording every transaction as equal debits and credits in at least two accounts, so the books always balance.
