by Dan Rowe, Vice President, Hoot Payment Solutions

Published in Indoor Comfort Marketing

Pre-Authorization vs Refund

For many fuel dealers there is a completely rational fear you may not get paid for the fuel you deliver if you don’t get an upfront payment.  Companies like ARM who specialize in collections for fuel oil and propane dealers prove there is a real problem with delinquent customers.  Some are habitual, some come out of the blue.  You never know when a household will go through a situation that changes their financial situation.

As a fuel dealer you already do a lot for the communities you serve and many of you go far beyond keeping them warm in the winter and the pool heated in the summer.  It’s up to you to decide if you should require a payment up front or extend terms to your customers.  You may decide to have different payment policies for different customers because you have a good idea which customers are “good for it”.

Should you decide that a payment up front is needed Credit Card and Debit Card Payments are the way to go. When it comes to securing a payment in advance you do not know how much product will fit in their tank. There are two ways you could approach this scenario.  Let’s look at a a scenario where a full tank delivery is equal to $400 and you get to the home and the tank only takes $325 worth of fuel:

Option 1.

Pre-Authorize: With a preauthorization, there are two parts to completing a credit card transaction, the “Authorization” and the “Settlement/Capture”.  In the above scenario the card would first be authorized for the full amount $400.  After the delivery is made, that open authorization would be adjusted to $325 and submitted for capture.  During the Pre-Authorization period the transaction will be pending, and the funds will be held.  If the capture is different from the amount that was pre-authorized there will be a downgrade on that transactions interchange cost.  The difference in the auth and the capture will take a couple days to drop off and return to the customers card.

Option 2.

Capture & Refund: With the Capture and Refund method the transaction is initially processed for the full $400 amount.  A refund is run for the difference is processed after the delivery has been made.  The customer will see a charge of $400 and a $75 refund.  By doing it this way your transactions will qualify for a much more favorable interchange category.  You will also receive interchange credits for the refunded amount.

It is up to each business to determine which method is right for them.  Many folks prefer one method over the other because it is “the way they have always done it.”  Delivering fuel is a business with tight margins.  It is important to get the most from your payments.  Reduce your cost per gallon and you increase your margin.  Capture & Refund would reduce the processing costs when you taking a payment prior to the fuel going in the tank.

There are organic ways fuel dealers can reduce their processing costs.  I challenge all those who have been using Pre-Authorizations as a policy to switch it up for a month or two and see how changing your process can impact your processing cost.

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