Guide to what is Instant Settlement & How Does It Work 


In the scenario of online payment processing, “settlement” is the most common word that is seen and used by merchants and businesses. 

More or less, online payment processing involves two steps, authorization and payment settlement. The first step is authorization, where things like bank details, cardholders’ details and other things are verified to initiate the payment. The second stage is a payment settlement where the transaction amount is debited from the payers’ account and credited into the account of merchants. Usually, this process takes time, so merchants have to wait for days to see the payment and profits into their account. This is where instant settlement comes into play. Let’s see how it works and how businesses can benefit from it! 

What Is Instant Settlement?

Instant settlement, also known as real-time payments, is when funds are transferred from the customer’s account to the merchant’s account in a few seconds. 

Practically, it means after completing the purchase and finishing a checkout, the transferred amount immediately reflects into the account of the merchant. So, they don’t have to wait to receive and use the amount they have earned. Instant settlements are no less than a boon to the online businesses, it eliminates delays and smoothen-out their operations. 

How Does An Instant Settlement Work?

When a user initiates the transaction, their banking card is processed and on the basis of the availability of funds in their account, the transaction is either validated or declined. A disapproved transaction means that the cardholder doesn’t have enough in their account to make the payment. 

On the other hand, when the transaction is approved, payment is initiated. The required amount is debited from the bank account of the customer and issued to the payment processor. Next, the payment processor transfers these funds to the merchant’s bank and then these funds get credited into the merchant’s account. 

How Instant Payment Can Benefit The Businesses? 

Waiting days and weeks to receive the payment from the transaction is the biggest issue faced by merchants which often hinder their operations. 

Instant settlement can overcome this challenge and improves the cash flow, growth and revenue generation of the businesses. It overcomes the liquid challenges imposed by the payment processors. 

Below are the ways in which instant settlement offered by payment gateways can help your business :

1. Improve Cash Flow 

Instant access to the received payment allows merchants to respond immediately to the new opportunities as well as challenges. 

They can take immediate actions for things like purchasing new stock, managing inventory, reinvesting, paying wages to their workers, cleaning bills of their suppliers and so on. Thus, they get ready to receive more orders. 

2. Reduction In Payment Processing Costs

By eliminating the bank interchange charges and card schemes, instant settlement reduces the overall cost of payment processing. This allows merchants to accept payments without worrying about the additional charges and put more stress on investing in their growth and other aspects of their business.

3. Removes Chargeback Costs 

Normally, the banking card payment involves a risk of chargebacks along with their linked costs. Instant settlement payment eliminates the chargeback risk and allows merchants to deal with actual transaction disputes, without worrying about the fees imposed on them by the banking card processors. 

4. Better Cash Management 

Instant settlement enables merchants to monitor their cash flow and also offers them the power to control the certainty and timing of payments. This simplifies the whole cash management process and improves business operations. 

Instant settlements are driving great results for businesses. This mechanism has completely changed how businesses receive their payments. It helps them to focus more on their growth and less on how payment is processed.