Payment terms, explained simply

A plain-English A–Z glossary of payment processing vocabulary — from ACH to webhooks — so you always know what a term means.

Payment processing has its own language. This glossary defines the most common terms in plain English so you can follow conversations with developers, processors, and accountants without getting lost.

Quick summary

Use this page as a reference. If you encounter a term in your Stripe dashboard, a developer's message, or an invoice, look it up here. Terms are listed alphabetically.

ACH (Automated Clearing House)

The US bank transfer network used for direct bank-to-bank transfers. ACH transfers usually take a few business days, and they do not move on weekends or bank holidays. It is the network behind most US payouts from a payment processor to your business bank account.

Authorization

The first step in a card payment. The processor asks the customer's bank to reserve (hold) funds. The money has not moved yet — it is just locked against the card's available balance. See also: Capture.

AVS (Address Verification System)

A fraud-checking tool that compares the billing address the customer entered with the address on file at their bank. A mismatch can flag a transaction for review or cause a decline.

Billing descriptor

The name that appears on a customer's card or bank statement when you charge them. If it is unclear or unfamiliar, customers may file a dispute. Stripe calls this your statement descriptor and you set it in your Stripe Dashboard; it has to be between 5 and 22 characters and should reflect the name you trade under.

Capture

The step that actually moves money after an authorization. Most online stores authorize and capture at the same moment. Some businesses (e.g. those that ship later) separate the two steps.

Card network

The organizations that operate the payment infrastructure and set the rules: Visa, Mastercard, American Express, Discover. They route transactions between your processor and the customer's bank.

Chargeback

A reversal of a payment initiated by the customer's bank, usually because the customer disputed the charge. Different from a refund (which you initiate). Your processor usually charges a fee when a dispute is filed, and winning does not necessarily get that fee back — check your processor's pricing page for the amounts. See Chargebacks & disputes explained.

CVV / CVC

The short security code printed on a card. Most cards use three digits; American Express uses a four-digit code. Some issuers print it on the back and some on the front. Online checkouts usually ask for it, because it helps show the customer has the card in hand.

Decline

When a charge is refused. Reasons include: insufficient funds, suspected fraud, incorrect card details, or a spending limit. Most declines come from the customer's own bank rather than from your website, though your processor's fraud tools can also block a payment before it ever reaches the bank.

Dispute

See Chargeback. Also used to describe PayPal's internal dispute resolution process, which is separate from a card-network chargeback.

Dunning

The process of following up on failed or overdue payments. In subscriptions, dunning emails are automated reminders sent to customers asking them to update an expired or failed payment method.

Economic nexus

A legal connection between your business and a state created by reaching a certain sales volume or number of transactions there — even without a physical presence. Relevant for sales tax obligations. See Sales tax basics for online sellers.

Fraud

Unauthorized use of a card. Can be "true fraud" (a stolen card) or "friendly fraud" (a customer disputing a legitimate charge to get a refund). Payment processors use machine learning to detect and block fraud.

Gateway

The secure connection that transmits card data from your website to the payment processor. With modern all-in-one processors, the gateway is built in.

Interchange

The fee that goes to the card-issuing bank for every transaction. It is included in the per-transaction fee you pay to your processor, so you generally never see it separately.

Issuing bank

The bank that issued the card to the customer (their bank). The issuing bank approves or declines transactions.

Merchant account

A special bank account that holds your funds during settlement before they are transferred to your regular business bank. With all-in-one processors like Stripe or PayPal you do not arrange one yourself — the processor holds your funds in your account balance and pays out from there.

Nexus

A legal connection between your business and a taxing jurisdiction (such as a state) that creates an obligation to collect and remit sales tax. See Sales tax basics for online sellers.

PCI DSS (Payment Card Industry Data Security Standard)

A security standard that all businesses accepting card payments must comply with. Using a hosted processor like Stripe reduces your compliance scope significantly. See Payment security & PCI compliance.

Payout

The transfer of your settled funds from your payment processor to your bank account. Stripe sends payouts on the schedule you choose. PayPal keeps funds in your PayPal balance until you transfer them, or until an automatic transfer you have set up runs.

Payment processor

The company that authorizes, routes, and settles your card transactions. Examples: Stripe, PayPal, Square. See Payment processors explained.

Pending balance

Funds that have been captured from customers but have not yet settled. You cannot withdraw or spend them yet. They move into your available balance once they settle, and how long that takes depends on your country and the payment method.

Recurring billing

Automatic charges on a schedule — monthly, annual, etc. Used for subscriptions and retainers. See Recurring payments & subscriptions.

Refund

A reversal of a payment that you initiate. The money is returned to the customer's original payment method. Different from a chargeback. See Refunds: best practices.

Retry logic

When a recurring charge fails, processors like Stripe automatically retry at intervals. Stripe calls its version Smart Retries.

Settlement

The final movement of funds through the banking system after a transaction is captured. Settlement is the point where the money stops being pending and becomes available in your processor balance, ready to be paid out.

Smart Retries

Stripe's system for retrying failed subscription charges at optimal times, increasing the chance of success.

Surcharging

Adding a fee to a transaction to cover processing costs. Subject to card network rules and state laws — not universally allowed.

Token / Tokenization

A process where your processor replaces a customer's real card number with a unique, meaningless string (the token). Your website never has to hold the actual card number, which protects customers if your systems are ever breached.

Transaction fee

The fee charged on each successful payment. Usually expressed as a percentage plus a flat amount, and the exact figures differ by processor, card and country — always check current rates on your processor's own pricing page. See Payment fees explained.

VAT (Value Added Tax)

A tax used in many countries outside the US, including the EU and UK. If you sell internationally, VAT obligations may apply. Consult a tax professional.

Webhook

An automated notification that Stripe (or another processor) sends to your website when something happens — a payment succeeds, a subscription renews, a chargeback is filed. Webhooks are how your website knows to confirm an order or update a subscription status. Your developer configures these.

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Payment terms, explained simply

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