We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is an Authorization Code?

By Eugene P.
Updated: May 16, 2024
Views: 10,273
Share

An authorization code is a number generated by a bank or financial institution that indicates a successful transfer of funds from an account through a specifically authorized person. The term is often used in conjunction with credit cards, indicating a credit card processor or issuing bank has approved a credit or funds transfer the cardholder wishes to make. It also can be used in a more broad sense to talk about how authorized people use a managed account in relation to making investments on behalf of the account holder.

When a person attempts to use a credit card to make a purchase, several steps are taken to resolve the transaction. The credit card number is transmitted to a credit card processing company or to the issuing bank, depending on the individual circumstances. The institution that is being queried then checks to see if there are funds available to cover the purchase. If there are sufficient funds, then an authorization code is transmitted back to the merchant, who stores it for later resolution.

Once authorization is received, the issuing bank linked to the credit card places a preliminary authorization hold on the card, effectively reserving the funds but not yet charging the customer. At the end of the business day, or at some other point, the merchant from whom the purchase was made will resolve his or her receipts and make a formal request for a transfer of funds from the institution. It is at this point that funds are actually transferred, with the authorization code used as a kind of tracking method for the transaction.

If there are not sufficient funds at the time of purchase, then a negative authorization code will be issued. Similarly, if for some reason there is a problem with the authorization code when the merchant tries to request a deposit, a chargeback could be issued. A chargeback is a denial of the funds from the issuing bank. Customers can request a chargeback if they wish to attempt to stop the funds from being withdrawn.

In financial institutions and in some specific situations, an authorization code could refer to a special number that is given to a person who has access to a managed account for the purpose of investment. These people are charged with making investments on behalf of the owner of the account. The authorization code serves as a security method for the transactions. A code used in this way helps to keep track of who is making purchases and aids in bookkeeping, accounting and overall transparency.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-an-authorization-code.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.