How do restaurants process tips on credit cards?

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When paying for a restaurant bill with a credit card, you may wonder how the establishment knows how much to charge to your card when you have not yet designated the amount of the tip.

Process

When a credit card is presented as a payment method for a restaurant bill, the server swipes the credit card for payment. Although the amount of the tip is unknown, most restaurant credit card systems authorize the credit card for 15 percent more than the bill to ensure that funds are available for a charge tip.

Explanation

The payment is not finalized until the cardholder writes in a tip amount (if desired) and signs the ticket.

Charging the Card

After the server retrieves the signed copy of the credit card ticket, he can pull up the check in the point-of-sale system. At that time, the actual tip amount is entered and the card is charged. The authorization on the credit card is dropped when payment is finalized.

Receipt of Funds

A charge tip must be exchanged with cash for a server to receive the funds. Most restaurants have a gratuity bank. It works similarly to how a petty-cash bank works with expense receipts. Servers add up their daily charge tips and the balance is paid to them in cash.

Warning

Unscrupulous servers may alter the charge tip amount on the signed copy to increase their take-home pay. Remember to keep a copy of your signed receipt should there be any discrepancy between what you signed for and what appears on your credit card statement.

Source:

iTipping: A Guide to Tips and Tipping

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How do restaurants process tips on credit cards?

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