What does T+1 or T+2 settlement mean?

T is the business day on which the transaction is captured and cleared. T+1 means the funds arrive the next business day, T+2 two business days later. Weekends and bank holidays do not count, so a Friday sale on T+2 is typically paid on Tuesday.

What T+1 and T+2 mean

Payout is paid on an agreed schedule such as T+1 or T+2. T+1 means the business day after capture, not after the sale. Weekends, scheme holidays and cut-off times routinely turn a Friday sale into a Tuesday payout. Upstream, in scheme settlement, issuers pay and acquirers receive, net, and card networks settle most currencies on a T+0 to T+2 basis, excluding weekends and local bank holidays.

The cost of the schedule

T+1, T+2, weekly, instant: each schedule is a price, a funding cost and a risk exposure. An acquirer that pays a merchant at T+1 while the scheme settles at T+2 pre-finances one day of volume: EUR 5 million a day at a 4% credit line costs EUR 200,000 a year in Silverflow’s example. The schedule should be set per merchant from risk data, chargeback ratio and tenure.

More detail in our #PayDecoding episode on Settlement.