The Life of an E-commerce Payment

We all know that for your business to excel, it is paramount that you understand all the processes involved in the day-to-day running of your business. This is especially true in the case of your financial services. If, as a business, you don’t understand how payments in and out of your accounts work, you run the risk of late payments, slow cash flow and unnecessary delays that can cripple a business’ ability to run smoothly.

In the example of processing a payment from your business’ website, there is a standard process that this payment follows in order for it to be processed and received by your business. Although the path of this payment is standard (depending on how your business is set up and how many providers you use), this payment path can be stalled at multiple points which, in turn, delays you receiving the payment and can have a negative effect on your cash flow.

To help in ensuring you have the most efficient payment processing system we have detailed below the path of an online payment (including a handy diagram!) to show how it should work.

Accepting credit or debit cards from your website goes through a number of different stages, and these steps debit your customer’s account and pay the funds into your bank account.

  • Company website: the online shopper adds a product/service that they wish to purchase into the websites shopping basket. Once the customer is ready to make a purchase they go to the website checkout. The purchase details are then sent to your Payment Gateway to process the payment.

  • Payment Gateway: the shopper is directed to the Payment Gateway where they choose a payment method and enter their payment details. This often does not look any different to your own website. The Payment Gateway sends the payment details to your business’s Merchant Account provider. They send these details via Visa and MasterCard to the shopper’s card issuing bank for authorisation.

  • Card Issuer: the card issuer will check if the card details are correct, the cardholder’s account has sufficient funds and that the card hasn’t been reported lost or stolen. If everything is OK, the card issuing bank authorises the payment requested, and debits those funds from the shopper’s bank account.

  • Payment Confirmation: the confirmation of the payment is sent to the Payment Gateway, which notifies the shopper and your business that the payment has been authorised – normally via a confirmation screen and an email. Businesses should only dispatch goods to the shopper once they have received notification of the payment’s authorisation. If the transaction is declined, you should be provided with a reason in case the shopper contacts you.

  • Merchant Account: the funds for the purchase are then sent from the shopper’s card issuer to your business’s Merchant Account. This can take 1-2 days to show in the Merchant Account. You are entitled to wait until funds are received before dispatching the goods the customer has purchased.

  • Business Bank Account: From the Merchant Account, the funds are paid into your business’ nominated bank account, normally with a short delay that’s specified by the Merchant Account provider. The Merchant Account provider will deduct the cost associated with processing the payment with the card schemes – normally a small percentage of the value of a credit card transaction or a flat fee for a debit card. When you sign up for the merchant account, this delay (often referred to as ‘settlement’ or ‘remittance’ period) is worth checking, as it varies according to the provider.

The time this end-to-end process takes depends upon the kind of services you are selling and the terms you have with your individual payment service providers. Make sure you know what your terms are and that your providers are sticking to their side of the deal. You should also be sure to check with alternative providers what terms they will offer you. Seeking a range of quotes will cost you nothing and ensure you pick the provider with the most competitive terms for your business.


CashFlowsArticle by CashFlows who provide everything a business needs to accept global credit and debit card payments from customers.

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