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Do you keep hearing settlement terms but aren’t sure what it means? A settlement term is an agreed period in which your card payment funds will be deposited into your bank account. The settlement terms can vary from next day to three days’ time. Settlement terms can also be referred to as a payment processing timeframe.
Some providers charge for different settlement terms, and some don’t. As a merchant, it’s important to understand the different settlement terms so you can choose what’s right for your business.
Understanding Your Settlement Choices
- Next Day Settlement
This is where payments are settled on the following day, seven days a week. While this offers swift access to your funds, it’s essential to note that most processors charge for this service, and approval is required.
- T+1 Settlement
T+1 settlement refers to payments settled on the next working day. For instance, if you open your shop on Monday, your card sales from that day will be reflected in your account on Tuesday. Like next-day settlement, some processors charge for this service.
- T+3 Settlement
T+3 settlement is a more extended timeframe, with payments settled three working days after. The advantage of T+3 settlement is that it typically comes without charges imposed by the processors meaning, it’s free.
Unravelling the Implications 
Whether you opt for T+1 or T+3 settlement, there’s a fundamental concept to grasp: your daily sales are received with a slight delay. To explain, consider this scenario:
Imagine you own a restaurant. If you are on T+1 settlement, your Monday sales will be reflected in your account on Tuesday. Subsequently, Tuesday’s sales will appear on Wednesday, Wednesday’s on Thursday, and Thursday’s on Friday. In essence, you will see your daily card turnover sales in your account every day.
Equally, with T+3 settlement, your Monday sales will be credited to your account on Thursday, and Tuesday’s sales on Friday. Therefore, when on T+3, you experience a brief delay in accessing your funds after the initial three days when you first sign your contract. After that, you’ll still be getting credited to your account daily.
Factors to Consider
The choice between T+1 and T+3 settlement should align with the specific cash flow requirements of your business. It’s important to note that settlement terms, while significant, should not be the sole determining factor when selecting your payment service provider. Other considerations, such as transaction fees, terminal costs, and support, also play a vital role in making an informed decision.
Understanding the details of payment processing timeframes allows merchants to determine if it’s worth paying for faster settlements or if its right for your business.
