USEFUL INFO
Chapter 3 : A bit more Technical

What Is Pre-Authorisation? – A Guide for UK Businesses

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IN THIS LESSON

Pre-authorisation (or pre-auth) is a useful tool for certain businesses that want to check a customer has enough funds on their card without actually taking the payment right away.

It’s most commonly used in sectors where there’s a risk of damages, additional charges, or no-shows — such as hotels, car hire companies, and certain types of bookings. But many UK businesses are unaware of how it works or whether they can use it.

This article explains what pre-authorisation is, how it works, the pros and cons, and when it’s appropriate to use it.

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  • Pre-authorisation is when you reserve funds on a customer’s card — but you don’t take the payment until later (if at all). It checks the card is valid and the money is available, but the funds stay in the customer’s account until you either complete (finalise) or cancel the transaction.

    It’s a way of protecting your business in advance, without needing to charge the customer immediately.

  • Pre-authorisation is generally available to businesses with a merchant account that includes this functionality. It’s not automatically enabled and is not usually available on basic app-based card readers (e.g. SumUp, Zettle).

    ✅ Common use cases:

    • Hotels and guest houses – to reserve against potential room damage or minibar charges

    • Car hire firms – to protect against fuel or damage costs

    • Beauty clinics and dental practices – to secure funds ahead of expensive treatments

    • Event or equipment hire – to ensure customers return items or pay for late fees

    • Restaurants and bars – to reserve a tab or bar spend (less common post-COVID)

  • Costs vary depending on your provider, but expect:

    • Standard transaction fees still apply (e.g. 0.3%–2%) if the pre-authorisation is completed

    • No charge usually applies if the pre-auth is cancelled before completion

    • Some providers may apply a small pre-auth fee or additional charge for enabling the function

    • You may need a more advanced terminal or EPOS system to access pre-auth functions

    📌 Tip: Always check your terms. Some providers restrict pre-auth to certain terminal models or business types.

    1. Customer presents their card

    2. You enter the amount to pre-authorise (not charge)

    3. The terminal or EPOS system sends a pre-auth request to the card issuer

    4. If approved, the amount is reserved on the card

    5. You then:

      • Complete the transaction later (within a set time, e.g. 7 days), or

      • Cancel or release the pre-auth if it’s not needed

    If the transaction isn’t completed in time, the reserved funds are automatically released back to the cardholder.

  • Pros of Using Pre-Authorisation

    • Protects your business from last-minute cancellations, damage, or unpaid charges

    • Avoids awkward conversations about payment upfront

    • Makes it easier to adjust final amounts later

    • Can improve cashflow by avoiding unnecessary refunds

    • Reassures the customer that you’ll only take what’s necessary

    ❌ Cons and Limitations of Pre-Authorisation

    • Not supported on all card machines or pricing plans

    • Time-sensitive – funds must be captured or released within a set period (often 7 days)

    • Customer may be confused or mistake it for a charge

    • Can tie up funds on the customer’s card, causing dissatisfaction

    • Higher chargeback risk if not explained clearly

    • Requires staff training and process integration in EPOS or booking systems

Important Considerations

  • Make sure you get clear consent from the customer

  • Always provide a pre-authorisation receipt if available

  • Clearly state your cancellation, damage or refund policies

  • If using pre-auths regularly, review your provider’s terms and your EPOS compatibility

  • Inform staff how to complete or cancel the pre-auth properly to avoid errors

Final Thoughts

Pre-authorisation can be a smart way to reduce risk and offer flexibility in how you manage payments — especially in industries where the final bill may change. But it’s essential to use it properly, communicate clearly with your customers, and ensure your technology is compatible.

Used correctly, it adds professionalism and reassurance — for both you and your customers.

🔍 Compare now or speak to an expert – no pressure, no jargon, just practical advice.