Business News Select | SMPost | Terms

Term: Standard Floor Limit

14 Sep 2015

DEFINITION of ‘Standard Floor Limit’
The amount of money that can be charged in a transaction before a credit or debit card must go through the authorization process. The standard floor limit may vary according to the type of credit card that is being used, and is outlined in the merchant agreement that the business has with the credit card company.

BREAKING DOWN ‘Standard Floor Limit’
Credit card transactions have evolved as technology improvements and easier access to credit have increased credit card usage. Before the advent of high speed connections and systems integration, businesses with credit card terminals had to contact credit card companies when the transaction amount reached a certain limit i.e. the floor limit. This often required the business to call the credit card company to confirm that the cardholder had the available credit. It was the standard operating procedure when credit card transactions were completed by making a physical imprint of the card using an imprinting slide machine.

The standard floor limit may vary according to the credit card company, with some companies requiring authorization at lower thresholds. For example, a credit card issuer may require any purchase over $500 to be authorized by the business where the transaction is taking place. If the business is unable to authorize the transaction, it will be unable to complete the transaction and will have to void the sale.

Today, most credit card transactions go through an electronic authorization process. When a card is swiped or inserted into a terminal, the information from the card’s magnetic strip, chip, or PIN-and-chip is electronically transmitted to systems that verify that the cardholder has the available funds. Transactions that are conducted over the Internet, as well as other transactions that are not conducted face-to-face (e.g. over the phone), often have the floor limit set at zero, meaning that all transactions must be authorized.

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