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What are the stages of a payment? How does payment processing work?
What are the stages of a payment? How does payment processing work?
Updated over a week ago

Anyone unfamiliar with how payments processing works might easily assume that when someone makes a payment, that the money simply moves from the credit card or bank account into the merchant's bank account in a single step. If only all things in life were so simple!

The reality is, payment processing is a complex process involving multiple parties, security checks and fund transfers. All of which is designed to ensure that the right person gets paid the right amount as quickly and securely as possible.

If you'd like to know more, the following is basic outline of how payment processing works.

A payment is made

This is the point at which your client makes the payment through your Joist estimate or invoice by credit card. This process is fairly routine and straightforward, although payments can be declined at this early state in some rare cases.

The checkout is verified

Once the payment is made, PayPal gets to work verifying the payment. They are checking with the credit card issuing bank to make sure the funds are available and that all the details provided by the payer line up.

There are security checks taking place here as well, which typically take just minutes to complete. In some rare cases, if PayPal needs to investigate further, the process can take longer. This is all done in an effort to protect you from fraud.

If PayPal cannot reliably find all the information they need to verify the payment, or they feel the payment may be a risk to you, they may fail the payment at this stage. Failed payments are extremely rare, however.

In most cases, the checkout is successfully verified and the funds are collected from the payer's credit card.

The funds are stored

At this stage, the funds become available in your PayPal account balance, where they will await transferring to your bank or credit union, assuming you have enabled Automatic Transfers in your PayPal account.

The funds are released

This is when the above mentioned transfer to your bank account begins. This transfer may contain a single payment, or multiple payments depending on how many payments you receive on a given day prior to the transfer time.
Because payment processors like PayPal are issuing tens of thousands of transfers to banks each day, they must send these transfers in batches at set times so the banks can process them reliably. In practice, this means you will see money transferred from your PayPal account to your bank account within 2 business days from when your customer pays.

The funds are captured

At this stage, the receiving bank or credit union has indicated to PayPal they will accept the transfer of funds. This event typically occurs within 2 business days, but some smaller banks or credit unions may take longer.

Note that your bank capturing the funds does not mean the funds are in your bank account yet. If you inquire with your bank at this stage, they likely won't be able to see any incoming funds connected to your account until the next and final stage is complete.

The funds are received

The final stage of the process is the funds actually showing up in your bank account. In most cases, the time between funds captured by the bank or credit union and the funds being added to your bank account is just a few hours, but some smaller banks or credit unions may take longer.

As you can see, there are many stages to processing a payment, with many parties involved in the process. The goal with every payment is to process it as quickly and as safely as possible for you.

For more on how long payments take to process, check out How long should a payment take to get to me?

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