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Author's profile photo Shailendu Verma

Adding Tolerance during authorizing credit card transactions

Not only do credit cards serve as a form of payment guarantee, but they also shorten the order to cash cycle. This improves cash application. This article is intended for eCommerce managers, SD / FI consultants and business process owners.

“Time is Money” – Benjamin Franklin.

It discusses the advantages of using credit cards within SAP, followed by business scenarios under which which one needs to authorize an amount slightly more than the order value. The blog post will also explain an overview of how this was achieved.


Importance of tolerance while processing credit cards (Source – Author’s own creation)

Why configure credit card processing within SAP

As was cited earlier, credit card provides the merchant an assurance of payment. The merchant may authorize an amount at order placement and capture the funds when goods are dispatched. Alternatively, the merchant may want to authorize and capture funds simultaneously at order placement. This is specially true if they deal in virtual products, made to stock items or if they deal in third party shipments.

The important aspect is that the organization can sell products to relatively unknown / one time / geographically segregated customers, where it may be difficult / cumbersome to check credit worthiness. In some cases, it may be infeasible to get another form of payment guarantee such as letter of credit due to nature of business (low value / high volume transactions). Hence, enabling credit card processing within SAP opens doors to new customers and capture market share in new territories.

The second reason in favor of credit card processing is faster cash application. As opposed to usual credit purchases where payments are realized after weeks / months, credit card settlements happen weekly or in some cases even daily.

There is yet another business case. Let us suppose that there is a B2B customer who may not have sufficient credit availability at a point in time. However, they may have an urgent order for which an alternate payment method is sought. Leveraging credit cards, they can place an order without consuming / validating against available credit balance. Due to the above reasons, integration with credit card processors like Authorize.NET and Stripe is gaining popularity.



Usual order to cash cycle with credit cards (Source – Author’s own creation)

Why tolerance may be needed while authorizing a credit card transaction

Now that the relevance of credit card processing has been discussed, this section will focus on business cases where the authorized amount may be more than the order value. Such authorization protects the interest of the merchant for deviation in invoice vis-à-vis the order value. Such a tolerance provides a leeway and prevents blocking of the transaction in case where this difference does not get authorized by the bank.

  • Variance – ordered vs delivered quantity

In many industries / business processes system allows a delivery quantity more than order quantity (delivery item category set as B).

  • Inability to accurately determine freight

Sometimes it is difficult to predict accurate freight at the time of order placement. This is specially true when you may offer discounts for shipments in certain logical units of measure (pallet / half truck load / full truck load). Since orders could be combined into one shipment, the exact shipment volume is unknown until that day. Hence, adding a tolerance to the authorized amount helps prevent another authorization call, so long as adding freight doesn’t make it fall beyond the tolerance.

  • Frequent Order Changes

When orders are changed amounting to an increase in the order value, SAP automatically creates new authorization lines in the order. However, it also depends on funds availability as far as customer’s credit card is concerned. If for some reason, the process of authorizing additional funds fail, the order would be blocked for delivery.

However, in case tolerance is enabled, the order is good to go as long as the order value changes within the tolerance limits. Hence it provides a cushion for order to cash cycle to run end to end without any road blocks. Kindly read the section which discusses how much tolerance to configure.


SAP Solution to add tolerance to credit card transaction

Having understood why tolerance may be needed at the time of authorizing the transaction, this section gives an overview of the solution. The entire solution, however, is much more complicated and cannot be documented in this blog post.


Setting a configuration table

Since the tolerance value can be changed with time, it makes sense to put up a table to store this configuration. For this specific case, additional details were needed to be stored.


Configuration table for payment gateway (Source – Author’s own creation)

Overriding the authorized amount to include the tolerance

Leveraging enhancement points within SAP order processing, we can override the authorized amount to include tolerance set in the configuration table. As you can see from the picture below though the authorized amount should be $805, the solution creates tolerance lines amounting to $886 which includes tolerance of 10% (rounded to the next integer).


Authorized amount including tolerance

How much tolerance in enough?

Though tolerance levels can be adjusted as learnings kick in, there are two important aspects in deciding the same – amount and settlement horizon.

On using tolerance, it must be understood that additional funds are being blocked on customer’s credit card. Hence, the value cannot be exorbitant. Another point to consider is the typical lead time from order to delivery in the specific business context. If the orders are usually shipped the same day, these additional funds are not blocked for a long time. On the other hand, if the business deals in made to order model, tolerance levels must be stringent since it will block the funds longer.

For the invoice below, though the authorized amount was $833, the invoice amounted to $805 including tax. When the invoice was posted, funds were captured ($805). Usually when this happens, the credit card processor would release the additionally blocked funds ($25 in this case).


Invoice amounts and capture (Source – Author’s own creation)

When the settlement happens, the credit card processor deposits the captured amount ($833 minus any fees).The settlement, however, is done in batches. Hence from the above, it can be inferred that additional funds are blocked from order placement till invoice gets posted to accounting.


Summary and further reading

Understanding business cases where tolerance may be needed, empowers you to take an informed decision on whether and if so, how much tolerance needs to be configured. As you start doing transactions, you might learn from the experience and may need to adjust the tolerance levels.

Audience who are interested in exploring the subject further can go through the following resources.

Getting to know SAP credit card integration

Payment Cards in Sales and Distribution

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