Why clearing matters
A payment system has three discrete steps that get casually conflated:
- Authorization — "yes, the funds exist and this transaction is approved"
- Clearing — "here are the line-by-line details; here is the net amount each party owes"
- Settlement — actual movement of funds
Clearing is where the network or operator (Fed for ACH, the card network for card, the operator for RTP/FedNow) accepts the formal details and produces the obligations. Settlement is the cash leg.
When to care
You care about clearing when you are reconciling, when you are forecasting cash, and when you are designing your sub-ledger. The cleared amount is what you can rely on; the authorized amount is provisional. Building reconciliation on authorization rather than clearing is a classic root cause of fintech ledger mismatches.
Common pitfalls
- Mixing authorization and clearing in the ledger. Authorizations can drop, change amount, or expire. Clearing files are the source of truth.
- Treating clearing as instant. ACH clearing files are batched. Card clearing typically arrives the next business day. Plan for the gap.
- Cleared but not settled. Funds can be cleared (the obligation is known) but not yet settled (cash hasn't moved). Risk teams treat these distinctly.