Many businesses offer card on file transactions. These can add convenience for you and your customers, as well as encourage repeat transactions. Before starting to use card on file payments, there are a few important things you should know about.
What Is a Card on File Transaction?
Also called CoF transactions, card on file transactions are becoming increasingly common with businesses these days. This is a transaction where the customer previously gave their payment details to the merchant. The merchant stores the payment securely for future transactions.
During a card on file transaction, the customer doesn’t have to resupply their payment details. In the case of online transactions, they don’t have to reenter their card number and CVV. In the case of in-person transactions, they don’t have to swipe or insert the card.
CoF Transactions are Merchant-Initiated
Card on file transactions are a type of merchant-initiated transaction. For reference, a merchant-initiated transaction is when the merchant starts the transaction. They have the ability to do so because the customer previously provided authorization and payment details.
By contrast, customer-initiated transactions occur when the customer enters their payment information at a POS system or online. This is when you would have to enter your PIN or CVV.
![woman paying on mobile with cc](https://cms.podium.com/wp-content/uploads/2023/01/woman-paying-on-mobile-with-cc-1024x640.png)
How Do Card on File Transactions Work?
When setting up card on file transactions, businesses will need to gather the card payment information and get authorization.
The business needs explicit permission to store the card information on file and to use it to make future payments. When the customer authorizes the card on file, the merchant will outline specific terms that they must agree to. This will include the amount and number of future payments, the timing of payments, and likely services or products rendered in exchange for payment.
You can collect this payment information for a card on file in nearly any way. It can be done online, at the point-of-sale system, or over the phone.
To initially store the card on file, the business will typically have to do one of a few things. The customer may need to make a purchase and agree to store the card information for future transactions (either online or in-person). The merchant can also run a zero-amount transaction to confirm that the card works.
4 Benefits of Card on File Transactions
As mentioned, card on file transactions are incredibly convenient for both businesses and customers. The following are just some of the benefits of these transactions.
1. Reduced Admin Work
A major business benefit of having a card on file is the reduced need for administrative tasks. Your team doesn’t have to waste time and energy collecting the card details for every single transaction.
2. Get Paid on Time
With credit card on file transactions, customers authorize future payments. This reduces the risk of overdue payments, as you can process them automatically. It also saves your administrative team from having to chase down overdue payments or send reminders.
3. Improve Cash Flow
Getting paid on time improves your cash flow. That helps ensure that your business always has the funds it needs. This is especially important for small businesses.
4. Increase Customer Retention
Using a card on file can also help with customer retention when it comes to subscriptions or other recurring payments. After all, there is an extra step that customers would have to take to cancel.