A credit floor – or floor limit – is the minimum transaction amount that requires authorization from the card issuer. Sales above this amount need approval, or they may trigger a credit floor decline, potentially leading to a chargeback if no authorization code is present. You can reverse a chargeback when there’s evidence presented of the purchase, but if no evidence exists due to poor recordkeeping, the merchant loses the money on the transaction.
How is a Credit Floor Limit Defined?
A credit floor is the maximum amount a merchant can process without getting authorization. For example, if your credit floor is $30, any purchase above that needs approval to avoid a credit floor decline or chargeback.
Sometimes, an account has a zero floor limit. In this case, every card issued must include an authorization code issued with the sale. A zero floor limit usually gets placed on accounts that never process credit cards in person. When a business accepts credit cards primarily through online or over-the-phone transactions, the business always needs an authorization code for the transactions.
A credit floor can speed up smaller transactions since amounts under the threshold don’t need authorization. This can improve customer experience and reduce checkout friction for sales with a lower price point.
Some exceptions to the floor limit exist in the form of debit cards. Debit cards always need authorization codes to come from the cardholder’s bank. This code is to protect the cardholder from an accidental overdraw. Some businesses put a temporary hold on card funds more than a sale. A temporary hold gets used where the final sale amount is unknown, such as a gasoline sale. The business needs to make sure enough money exists in the account to complete the purchase. The hold also minimizes the loss in case of a stolen debit card.
When Are Credit Floors Still Relevant Today?
While modern POS systems often authorize all transactions instantly, credit floors still matter when systems go offline or networks fail. Merchants may rely on floor limits as backup thresholds for offline approvals.
Authorization Codes and Credit Floor Declines
When a transaction exceeds the credit floor, multiple authorization codes may be issued – some from the POS terminal, others from card guarantee companies like Visa or Mastercard. Understanding what each code means is essential, as some transactions may be eligible for dispute while others may be flagged as fraudulent and non-disputable. This knowledge helps merchants better manage credit floor decline risks.
You should know when you can dispute the chargeback and when you need to accept the loss of money. If a chargeback occurs, an authorization code can help prove the transaction was valid. Without one, your business may be responsible for the chargeback loss.
Why Does a No Authorization Code Get Issued?
The primary reason a no authorization code gets issued stems from a sale exceeding the floor limit. But other codes can cause a lack of authorization. Each code has its rules and specifies if the chargeback — if one happens — is open for dispute or not.
When a merchant has a sale of $30 and the merchant’s floor limit is set to $25, a no authorization code gets issued. This issuing code may come from the terminal or the merchant service provider. Sometimes, an authorization for an over-the-limit transaction is issued, allowing the business to process the sale and avoid a chargeback.
All transactions for amounts that exceed the floor limit receive an authorization code and aren’t as easily disputed by the customer.
How is a Credit Floor Determined?
A few factors play a role in determining a floor limit. These factors include using Visa or MasterCard guidelines, average sales, and what the merchant service provider feels comfortable allowing. All merchant accounts, including a high-risk merchant account bad credit, put a floor limit on sales, especially when the client is new to accepting credit cards. This floor limit corrals liability to the business and service provider.
“Card not present” sales are almost always set at a limit of zero, as these sales are harder to guarantee against fraud. Establish exceptions to the rule with the merchant service provider.
What Happens After a Credit Floor Decline?
If the terminal processes a transaction without receiving authorization, the sale may still go through—both the customer and business receive their merchandise and funds. However, without proper authorization, the merchant is exposed to risk. If the customer later disputes the charge, a credit floor decline could result in a chargeback, even though the transaction initially appeared successful.
If a customer isn’t satisfied and initiates a chargeback, the business must prove the sale took place. That includes showing evidence that the customer participated in the transaction, providing the authorization code, or offering proof of a refund. If no authorization code was issued – especially after a credit floor decline—the merchant is likely to lose the chargeback and forfeit the revenue.
While a low credit floor might feel restrictive, it’s designed to protect both merchants and card issuers from fraud and reduce the impact of chargebacks.
