What’s the Difference Between Gross Settlement and Net Settlement?

Gross settlement and net settlement refer to how credit card payments are deposited into your business bank account. The difference lies in when and how processing fees are deducted. Understanding this distinction is critical for reconciling deposits, forecasting cash flow, and identifying fee structures.

What Is Gross Settlement?

Gross settlement means that the full amount of a customer’s payment is deposited into your business bank account before any processing fees are removed. The fees are then deducted in a separate transaction, usually on a daily, weekly, or monthly basis.

For example:

If a customer pays $100, your account receives $100. Then, at the end of the day or month, the processor withdraws $2.90 in fees separately.

What Is Net Settlement?

Net settlement means the credit card processing fees are automatically deducted before the funds are deposited into your bank account. You only receive the net amount after fees.

For example:

If a customer pays $100 and the fee is $2.90, your account receives $97.10. The fee is already removed.

Why Does Settlement Type Matter?

The type of settlement affects how you manage:

• Cash flow forecasting
• Daily reconciliation with sales reports
• Accounting software syncing
• Fee transparency

Businesses with high daily transaction volume often prefer gross settlement for clearer fee tracking. Those seeking simpler bank statements may opt for net settlement.

RevitPay’s multi-entity reporting and reconciliation service helps businesses match settlements to actual transactions and fee schedules, regardless of settlement type.

Which Processors Offer Each Type?

Some processors allow you to choose, while others assign a default:

• Gross settlement is common with full-service merchant accounts.
• Net settlement is often used by bundled services like Square or Stripe.

Processors that offer customized solutions may allow weekly or monthly gross settlement, which provides more flexibility for cash flow planning and reconciliation.

How Do Settlement Types Affect Accounting?

Gross and net settlements require different approaches in accounting software:

• Gross settlement: Record the full sales amount as revenue and record fees as an expense.
• Net settlement: Record the deposit amount as revenue and optionally track the embedded fee as an internal adjustment.

RevitPay’s multi-entity reconciliation tools help automate this process across multiple merchant accounts, bank feeds, and platforms.

Are There Tax Implications?

Yes. Businesses must report gross sales revenue, not the net amount received, when filing taxes. If you use net settlement and don’t account for the fees separately, you may underreport your income.

Processors typically issue a 1099-K or equivalent report listing gross volume. Always reconcile this with your internal sales reports and not just the bank deposits.

What Role Do Authorization Holds Play?

Authorization holds delay the final settlement. A transaction may be approved, but the funds aren't transferred until it’s captured and settled. The authorization holds and settlement timelines article explains that card-not-present and high-risk transactions often take longer to clear.

If you’re on gross settlement, your deposit will reflect the full amount when cleared. If you’re on net settlement, the deposit already accounts for both timing and fees.

Which Is Better: Gross or Net?

There’s no one-size-fits-all answer. It depends on your business’s priorities:

• Choose gross settlement if you want:
  • Transparent fee tracking
  • Cleaner reconciliation
  • Easier financial audits
• Choose net settlement if you prefer:
  • Simpler bank statements
  • Real-time deposits with fewer line items

High-volume or multi-location businesses often benefit from gross settlement paired with robust reconciliation tools.

Conclusion

Gross settlement deposits the full transaction amount before fees are withdrawn, while net settlement subtracts fees before funds hit your account. Knowing the difference helps you manage your finances more accurately. With support from multi-entity reporting and reconciliation and insight from the authorization holds timeline guide, your business can streamline reconciliation and make more informed financial decisions.

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