When a customer makes a purchase from your business, the payment travels from one financial institution to another in a process called money movement. The transaction is finalised during payment settlement, one of the last steps in the process, and the funds are then transferred into your account. You can typically decide whether to receive payouts on a gross or net settlement basis.
Gross and net settlement differ in their speed, liquidity requirements, and cost. They also tend to be specific to different payment methods such as credit cards and digital wallets. Understanding the key differences between gross and net settlement—and the types of payment methods they align with—can help you decide which settlement type best fits your business.
Below, we’ll discuss gross settlement and net settlement, including how they work and how each model can affect your business.
Key takeaways
Payment settlement is one of the last steps in the payment process, and it’s where a transaction is finalised and funds are transferred from the buyer’s account to the seller’s.
Gross settlement and net settlement are two types of settlement methods.
Gross settlement settles each transaction individually in real time, and transfers are finalised as soon as they post.
Net settlement tallies transactions over a set period and transfers funds in a consolidated amount.
The type of settlement method you choose can affect payout speed, cash flow, business operations, and the payment options you offer to customers.
What is payment settlement?
Payment settlement is when funds move from one financial institution to another. It’s one of the last stages of the payment lifecycle. When a customer makes a purchase from your business, the transaction goes through several steps before it reaches settlement, including authorisation and batching. Then, it’s settled either individually (i.e., gross settlement) or in a batch at the end of a set period (i.e., net settlement).
Payment settlement models and timelines vary based on the payment network used in a transaction. This is the pathway that lets payments travel from one financial institution to another. Common types of US payment networks include bank transfers (e.g., Automated Clearing House, or ACH), card networks, real-time gross settlement (RTGS) systems (e.g., Fedwire), instant payments (e.g., FedNow), and digital wallets.
The type of settlement model your business uses—gross or net—directly affects how quickly you receive funds after a purchase. Each model also comes with its own benefits and risks.
What is gross settlement and how does it work?
Gross settlement is a payment settlement method that finalises transfers one by one. Transfers generally clear within seconds or minutes after the customer pays and are final once they’re processed. Your business can typically access funds shortly after the customer pays. While gross settlement tends to cost more than other settlement methods, it can provide unmatched speed and certainty for businesses—especially for high-value, time-sensitive transfers.
In the US, real-time payment (RTP) networks such as FedNow, as well as RTGS systems such as Fedwire, settle transactions individually in central bank money. Then, each bank updates its customers’ balances to reflect that money movement. RTP and RTGS systems are often managed domestically or regionally. But if your business needs a global settlement system, working with a platform that can connect to local payment systems directly (e.g., Stripe) can speed up the process.
What is net settlement and how does it work?
Net settlement is a payment settlement method that batches transactions over a period of time, such as one business day. After the transaction is authorised, banks tally what they owe to each other and transfer the net difference. It’s sometimes referred to as “deferred net settlement” since transactions aren’t settled immediately. Net settlement is typically used for credit card, debit card, and ACH payments. Payout timelines can vary, but it generally takes a few days before funds are transferred to your account.
With credit card payments, transactions are typically authorised instantly, batched, and released at the end of each business day. After they clear overnight, settlement usually takes one to three business days. However, credit card settlement timelines can be shorter or longer depending on the parties involved and the specific processing systems used. And with ACH payments, banks batch and send transfers on a schedule. They often do so every four to six hours, instead of once a day as with credit cards.
Gross vs. net settlement: What are the differences?
Gross settlement and net settlement differ in several major ways from speed to cost.
For instance, net settlement tends to be slower and can require businesses to pay daily processing fees. Meanwhile, gross settlement can facilitate large transactions quickly and its fees are typically higher and charged on a monthly basis. The payment rails for each settlement method also vary. For example, domestic wire transfers use gross settlement, while credit card transactions use net settlement.
|
Gross settlement vs. net settlement
|
||
|---|---|---|
| Gross settlement | Net settlement | |
| Speed | Most transactions settle within seconds or minutes | Most transactions settle within a few days |
| Transaction finality | Final after transfer | Reversible after transfer |
| Liquidity needs | High | Low |
| Cost | Might cost more; total processing fees are typically collected once per month | Might cost less; processing fees are typically collected once per day |
| Fraud reversibility | Not possible | Possible |
| Payment rails | Wire transfers and country-specific RTP and RTGS systems | Credit cards, debit cards, ACH |
What do gross and net settlement models mean for your business?
Here’s how the type of settlement model you choose—gross or net—can affect your business operations:
Payout timing: With faster settlement models such as gross settlement, your business won’t have to wait days to receive funds. Adopting payment methods with shorter settlement cycles can also mean fewer cash gaps and more flexibility in how you manage operating expenses.
Authorization vs. settlement: Authorisation says the “funds are here” while settlement says “the money is paid.” The settlement method you choose can directly determine the delay between the two. With gross settlement, funds are authorised individually and settle in just minutes, giving you access to cash right after a purchase and clearer insight into cash flow. With net settlement, the funds are usually “authorised” quickly, but you aren’t able to access them for at least a day, and your account balances might need additional reconciliation.
Settlement risks: Payment settlement methods are sometimes at risk for fraud, suspicious activity, compliance issues, and other disruptions. It’s important to choose bank and payment partners with strong fraud detection tools; Stripe, for instance, offers solutions that can help minimise settlement delays and operational issues.
The settlement method that’s best for your business depends on the payment rails you use, the size of the payments you receive, and how you want to pay processing fees, among other considerations.
How Stripe Payments can help
Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.
Stripe Payments can help you:
Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment user interfaces (UIs), access to 125+ payment methods, and Link, a digital wallet built by Stripe.
Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.
Improve payment performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.
Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
Learn more about how Stripe Payments can power your online and in-person payments or get started today.
FAQs about gross vs. net settlement
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.