Settlement
The behind-the-scenes process where authorized payments are finalized and the money actually moves into your account.
Definition
Settlement is the stage of a payment where money actually changes hands. After a card payment is authorized, the transaction is captured and submitted in a batch to the card networks, which move funds from the customer's bank to your processor, and finally into your bank account as a payout. For ACH payments, settlement is when the transfer clears between banks through the ACH network.
The timing varies by payment method. Card transactions typically settle to your processor within a day or two, and your payout schedule, often one to three business days, determines when you can spend the money. Standard ACH settles in one to two business days; wires settle same day. Settlement is also when fees are deducted, which is why the deposit hitting your bank is smaller than the invoice total.
Why It Matters
The gap between "client paid" and "money in my account" is settlement, and it matters for cash flow planning. If a client pays a $20,000 invoice by card on Friday, you may not see the payout until Tuesday or Wednesday. Knowing your processor's payout schedule keeps you from promising contractor payments or covering payroll with money that has not landed yet.
Settlement timing is also a lever you can pull. Some processors offer faster or instant payouts for an extra fee, typically around 1%, which can be worth it in a genuine crunch but is an expensive habit. Matching your invoicing rhythm to your payout schedule is usually the cheaper fix.
Examples
- 1
A client pays a $7,500 invoice by card on Monday; the transaction settles overnight and the payout, $7,282 after fees, reaches the agency's bank Wednesday.
- 2
A freelancer needs cash for rent and pays a 1% instant-payout fee, $45, to receive a $4,500 settlement immediately instead of in two days.
- 3
A studio reconciles its books and matches Friday's $12,000 of invoice payments to a single $11,640 batch settlement deposit the following Tuesday.
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