Pre-authorization: How can it help your restaurant or bar?

So, you're a bar or restaurant owner looking to take your business to the next level, and you've heard that preauthorization could be the key. But what exactly is preauthorization? And how exactly can it benefit your bar or restaurant business?

Well, we've got you covered. We're giving you the low down on everything you need to know about preauthorization for bars and restaurants, from how it works to the benefits it can bring your hospitality business.

So grab yourself a drink, sit back, and let's get started.

How does a bar tab work?

In order to understand preauthorization, it's first important to understand how a bar tab works. When a customer opens a tab at a bar, the bartender will typically ask for the customer's name, phone number, and credit card information. This information is then stored in the bar's system.

Once the customer is ready to close out their tab, the bartender will process the charges, and the customer will sign the receipt. The customer's credit card will then be charged for the total amount of their tab, plus any additional charges, such as tips.

What is preauthorization?

Let's say your customer asks to set up a bar tab and leaves their card behind the bar. A few hours later, they come back to close out their tab and find that their card has been declined. Not only is this embarrassing for your customer, but it's also bad for business.

This is where preauthorization comes in. Preauthorization is the process of verifying that a customer's credit card has sufficient funds to cover the charges of their tab. This is done by placing a preauthorization charge on the card for an amount that is equal to or greater than the estimated tab.

For example, suppose your customer has a $100 tab. The customer would put in their card details and a preauthorization temporary hold would be placed on their credit card for $100. Once the customer closes out their tab and pays their bill, the hold is released, and the preauthorization charge is made to your customer's credit or debit card for the actual amount of their tab.

5 ways bar businesses benefit from preauthorization

Now that you know what preauthorization is, let's take a look at some of the ways it can benefit your bar business.

1. Avoids embarrassing situations

As we mentioned before, one of the biggest benefits of preauthorization is that it can help you avoid embarrassing situations, like having a customer's card declined. Nobody likes to be in that situation, least of all your customer.

2. Improves customer experience

Suppose a customer comes into your bar and wants to open a tab, but you don't have preauthorization set up. The customer completely forgets about their tab and leaves your bar without paying. Not only have you lost out on that sale, but your customers also have the additional hassle of having to return to your venue the next day to settle their tab.

If you have preauthorization set up, you can avoid this situation altogether, thus improving customer experience. The customer's card will be automatically charged for their tab the next day, so they can enjoy their evening without worrying about forgetting to pay for their tab. 

3. Reduces chargebacks

Chargebacks happen when a customer disputes a charge on their credit card. This can be costly for your business, as you will be charged a fee for the chargeback, and you may also lose the money from the original sale. 

By preauthorizing a customer's credit card, you can help to reduce chargebacks by ensuring that the customer has sufficient funds to cover their tab. This in turn reduces costs for your business. 

4. Minimises fraud

Pre-authorisation can also help to reduce fraud. This is because preauthorization holds the funds in your account, rather than releasing them to the customer immediately. This way, if a customer tries to use a stolen credit card, you will not be liable for the charges.

Let's say a customer tries to use a stolen credit card to open a tab at your bar. The pre-authorisation hold will be placed on the card, but the funds will not be released to the customer. The customer will then be unable to close out their tab and pay their bill.

5. Increases workflow speed

If your servers or bartenders are having a busy night, taking separate orders and payments can be a pain. Your orders will be backed up, and this can lead to additional stress for your employees, as well as frustrated customers.

With preauthorization, your team simply needs to swipe their customer's credit card once to set up the tab. Every time your customer orders something, it will be charged to their credit card automatically and you won't need a physical card back in order to close out the check.

Preauthorization myths, debunked!

Now that you know the benefits of preauthorization, let's take a look at some of the most common myths about preauthorization, and why they're simply not true:

Myth 1: It's dangerous to save my customer's credit card information

This is simply not true. Your customer's credit card information is instantly encrypted as soon as it's swiped, and it's stored in a secure, PCI-compliant environment. This means that your customer's information is safe, and you don't have to worry about it being compromised.

Myth 2: "It's going to make my life so much more difficult!"

That's not the case. In fact, the preauthorization procedure is easy. You won't have to worry about bounced checks or chargebacks, and you can streamline your workflow by swiping a customer's credit card once to set up a tab.

Myth 3: "It's going to take forever to set up!"

Nope! Setting up pre-authorization is actually quick and easy. You can sign up for free, and there are no contracts or monthly fees.

Myth 4: "I'm going to have to get a new terminal!"

Wrong! You can use the same terminal you've been using to accept credit cards. There's no need to buy a new one.