Provisional credit is a temporary credit the bank provides to an account while a transaction is either being disputed or verified. However, it often goes a step further for businesses and how they handle credit.
Businesses receive temporary credit after they deposit their money into a smart safe or deliver it to a cash-in-transit service. This temporary credit ensures that the business can use that money in their account before the money makes it to the bank. Read on for more information on provisional credit meaning and how it works.
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What Is Provisional Credit?
Many businesses continuously have money flowing in and out of their store from purchases, returns, chargebacks, or money going to the bank. Money that is en route to the bank or being disputed through a provisional adjustment can be used by businesses for many different needs. This allows businesses to utilize that flow of money without having to wait for cash-in-transit pickups or reconciliations.
Since stores need to be able to keep pace with the flow of customers, cash, and returns, many cash-handling services provide provisional credit. Many businesses also utilize smart safes that enable them to deposit and subsequently utilize the money before transporting it to the bank. This helps take some of the stress out of operational cash flow.
Why Is Provisional Credit Issued?
Many reasons may lead to the issuance of this type of credit. Most commonly, it occurs in the following situations:
- Pending Transactions: Many banking institutions will provide this type of credit while a transaction is pending. This allows businesses to continue to use funds or to collect their earnings without having to wait.
- Temporary Credit Reversal: These generally occur in the event of a chargeback. While the money is in dispute, the issuing bank provides provisional adjustment reversal to provide the business or customer with funds for a certain amount of time.
- While Money is Being Transported: Money deposited into a smart safe is credited by the bank so the business can access those funds before they reach their account.
Is It The Same As Temporary Credit?
Provisional credit can also go by the name of temporary credit. People often use these names interchangeably, but the term “provisional credit” is more commonly used and considered industry-standard.
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How Provisional Credit Works
The overall process is quite simple. Once a customer gives the business money, the business has access to these funds. However, businesses can’t utilize this money until it makes its way into their bank account. Once the business places the money into a smart safe or drops it off with a cash-in-transit service, the bank provides the temporary credit card funds to the business’ bank account.
The deposited money in a smart safe takes anywhere from 4-7 business days to appear in a bank account. The temporary credit provides access to the money during this time.
How Long Does Provisional Credit Last?
As stated above, the credit may last anywhere from 4-7 business days. However, for some businesses, this time frame may be more or less. In other instances, provisional credit dispute pending charges may provide the credit for as long as the chargeback takes to finalize.
Alternatives to Provisional Credit
A temporary credit adjustment is a popular option for many businesses, but there are also other alternatives available. Depending on the needs of your business, your cash flow, and how your POS debit system handles money, any of the following options may provide an alternative.
Traditional Bank Credit
A traditional bank credit is when a business or company has access to a pre-approved amount of money, typically on a credit card. Just like provisional credit, the business can utilize this money at any time. Some businesses may prefer this option if they do not have access to a smart safe or if they have fewer cash-in-transit pickups.
CashSimple™ All Inclusive Service
CashSimple™ provides an all-inclusive service that allows businesses to eliminate the liability that comes with holding or transporting cash for a daily flat rate. Once cash is fed into the safe by the business, ICL immediately purchases that cash. The business doesn’t have to worry about provisional credit, time transporting money to the bank, or other risks that temporary credits provide. Once ICL purchases the deposit, it’s in your bank account the next day and available to use.
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Business Loans
Business loans are when a bank provides money to a business or retailer with the intention of the business paying the bank back. While this provides immediate cash flow for the business, the added interest can often prove stressful in the long run.
Trade Credit
Trade credits are when a business agrees to work with another business, usually a supplier. The business gets products or services upfront, and the supplier or other party agrees that payment will come after – usually within 30, 60, or 90 days. Trade credit can provide money and goods for businesses upfront while giving them time to pay back the amount.
Invoice Financing
Invoice financing is similar to trade credit. It is when a bank or lender sends an invoice to a business in order to secure payment later. This gives quick access to a small percentage of the invoice amount to the business with the promise to pay it back later. This can provide access without much – or any – interest.
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Advantages and Disadvantages of Provisional Credit
There are many advantages and disadvantages of provisional credit, depending on the needs and wants of your business. Quick access to funds, faster dispute resolution, and maintained cash flow are often preferable for many companies’ business models, but some may find the risk of chargebacks more difficult to manage.
Advantages
Provisional credit can provide many advantages to your business and its cash flow, including:
- Quick Access to Funds: It gives businesses quicker access to funds that they can then use to continue to run their business.
- Higher Customer Satisfaction: This type of credit also keeps customers satisfied as well, as they can more easily access their money if they do end up doing a chargeback.
- Improved Employee Efficiency: It can also improve employee efficiency, as it involves less time counting money, sending the money off-site, and the potential time it takes to figure out chargebacks.
- Faster Dispute Resolution: It provides a faster way to resolve disputes. The customer’s access to the money ensures that they know their claim is being handled.
- Maintains Cash Flow: Provisional credit lets businesses maintain their cash flow to ensure day-to-day operations.
Disadvantages
There are still a few disadvantages to provisional credit, mostly all related to chargebacks and the risk of handling cash.
- Assumed Risk of Cash: This means that a business may run the risk of drawing out its credit and having less cash on hand.
- Complex Reversals: This type of credit can also lead to reverse provisional credit, where the bank investigates a transaction and reverses the money from the account due to errors or other issues. The reversal process is somewhat complicated and confusing to navigate, and take anywhere from a few days to a few weeks.
- Potential Chargebacks: It may also result in provisional credit reversal situations from potential chargebacks or disputed transactions.
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Provisional Credit Business Impact
This type of credit goes even further than the advantages listed above. It provides more detailed impacts for businesses and their operational needs, such as:
- Enhanced Cash Flow: Not only does it maintain cash flow, but it can enhance it as well. When businesses have the added amount of money on hand, they can utilize it to continue to run and improve their operations.
- Improved Reporting Accuracy: Improved reporting accuracy, especially with Integrated Cash Logistics and our system, helps your business run smoother while keeping your numbers accurate.
- Operational Flexibility: Provisional credit also provides the flexibility your business needs to deal with potential issues as they come.
CashSimple™: Better Than Provisional Credit
While provisional credit provides multiple advantages to businesses, Integrated Cash Logistics and CashSimple™ provide you with even more benefits than a typical cash handling service.
Our cash capture technology gives you real-time reporting while also eliminating the risk or worry of transporting your cash to the bank. We instantly buy deposits from you and provide quick access to cash. You don’t have to wait for your funds to reach the bank, and you don’t need provisional credit to compensate during a cash transport.
At Integrated Cash Logistics, we assume the risks and give you a single point of contact for all your banking, transport, and money needs for one daily flat rate. Integrated Cash Logistics is your shortest distance to cash. Get in touch or schedule a demo with our team today to hear more about how we can help.
Provisional Credit FAQ
Can You Spend Provisional Credit?
Yes, provisional credit can be spent when your account is credited. If it is reversed or a chargeback goes through, you will have to replace the money you have spent.
Can Provisional Credit Be Reversed?
Yes, the bank can reverse provisional credit by issuing a reverse debit card provisional credit. It can also be reversed in the account itself, meaning that the individual or business no longer has access to that money.
How Long Does Provisional Credit Last?
Provisional credit is valid for the duration of the dispute or until the money is deposited into the bank account.
Do I Have to Pay Back Provisional Credit?
You only pay back provisional credit if the charge is reversed after a dispute or banking error.
When Does Provisional Credit Become Permanent?
Provisional credit is permanent after the charge is fully deposited into your account, after the dispute is settled, or after the transfer is completed.
