A pre-authorisation, often called a pre-auth, reserves funds on a customer's card without taking payment straight away. The issuing bank confirms the money is available and holds that amount, reducing the available balance until the transaction is completed or released.
The business later captures the final amount, which may be lower or sometimes higher within provider limits, and the hold is replaced by the actual charge. If nothing is captured, the hold eventually expires, although how quickly the cardholder sees the funds return depends on the bank.
Hospitality uses pre-auths for bar and restaurant tabs, hotel bookings, deposits for events and reservations, and no-show protection. Retailers use them for hire items, special orders and deposits. A terminal or POS that supports pre-auth keeps the tab open and finalises it at close.
Common pitfalls include forgetting to capture or cancel, which leaves customers with a confusing hold, and setting hold amounts too high. Tell customers what is being held and for how long. Check that your terminal, provider and POS all support pre-auth and incremental authorisation, as not every setup does.
Used well, pre-auth reduces walk-outs and unpaid tabs while keeping the experience smooth. It relies on clear signage and staff who can explain it.