DEFINITION of 'Authorization Code'

An authorization code is an alphanumeric password that that identifies the user as authorized to purchase, sell or transfer items, or to enter information into a security-protected space. An authorization code can be a sequence of letters or numbers - sometimes both - that provides validation. This validation can be the authentication of a persons identity, the approval of a transaction, access to a secured area and so on. The most common usage of authorization code refers to the code sent to a merchant from a credit card issuer that confirms the customer's credit card has sufficient credit available to authorize the transaction.  

BREAKING DOWN 'Authorization Code'

Authorization codes are used for any transaction or entry that has restrictions on which users are entitled to access. For example, a credit card authorization code is a five or six number code from the issuing bank to the vendor that authorizes the sale. If the credit card used is counterfeit or the card is overlimit, the credit card company declines the sale. If approved, the authorization code is attached to the credit card transaction. This signals to the merchant that the transaction is approved and also helps to identify the transaction in follow-up examinations, such as disputed transactions. Authorization codes are transmitted digitally and are used to speed up credit card processing. If vendors had to call the issuer for a verbal authorization code to complete every transaction, it would drastically reduce the speed of commerce. 

Authorization Codes in Expense Approvals and Data Security

Authorization codes also play a role in corporate financial controls. Staff can be given different authorization codes for purchase and expenses. This allows the company to track the purchases and spending in specific areas right down to the employee level. These authorization codes are also given specific transaction thresholds. If an employee is attempting to expense something beyond his or her threshold, it will require the authorization code of a manager or supervisor higher up in the organization. In this sense, authorization codes are part of the financial control system that prevents employee fraud or misuse of funds. 

Authorization codes have also become a common in professional workplaces as a way to maintain information security. Access to servers or VPNs will be managed using authorization codes tied to unique user IDs to track who is authorized to access what information and limit their activities in sensitive databases. These authorization codes may be permanent over the length of an employees tenure, but more often they are periodically refreshed and changed on a cycle similar to password controls. There are also one-time authorization codes or tokens that only last for the length of a single session. 

  1. Validation Code

    Validation code is a series of numbers on a credit card that ...
  2. Authorization Date

    The month, day and year when a credit card transaction is approved ...
  3. Transaction Authentication Number ...

    A transaction authentication number is a one-time code used to ...
  4. Standard Floor Limit

    A Standard Floor Limit is the maximum amount a merchant can charge ...
  5. Trading Authorization

    Trading authorization refers to the level of power entrusted ...
  6. Limited Trading Authorization

    Limited trade authorization grants an agent or broker the power ...
Related Articles
  1. Personal Finance

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  2. IPF - Banking

    Credit, Debit and Charge: Sizing Up The Cards in Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.
  3. Personal Finance

    Combining Credit For A Happy Financial-Ever-After

    A couple's finances may not always be a match made in heaven. Find out when to say "I Do".
  4. Insights

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  5. Investing

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
  6. Tech

    How Much Cheaper are Bitcoin Fees than Credit Card Fees?

    Bitcoin transaction fees are starting to rise as the network gets backlogged due to more usage, but are still much lower than typical credit card fees.
  7. Taxes

    Who Does The Current Tax Code Benefit?

    Are the non-workers benefiting from the current tax code in any way or is it the wealthy who are still getting the big breaks?
  8. Personal Finance

    Purchases You Should Always Make With A Credit Card

    Credit cards aren't always bad possessions to have. There are certain perks associated with using credit cards as we make routine or irregular purchases.
  1. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center