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. Authorization Date

    The month, day and year when a credit card transaction is approved ...
  2. Customer Type Indicator Codes - ...

    Customer type indicator codes are part of a system that identify ...
  3. Credit Card Authorized User

    A credit card authorized user is a person who has permission ...
  4. Positive Authorization

    Positive authorization is the confirmation by a payment processor ...
  5. Open Source

    Open source refers to a program with source code that can be ...
  6. Authorized Stock

    Authorized stock is the maximum number of shares that a corporation ...
Related Articles
  1. Investing

    How Japan's Stewardship Code Works

    The new stewardship code in Japan aims to improve corporate governance. Will this voluntary code help beneficiaries of company pension funds as intended?
  2. Taxes

    Why The Complex U.S. Tax Code Won't Be Simplified

    The tax code is 5296 pages long, and it still hasn't been abridged by Congress. Find out why.
  3. Small Business

    How to Use Small Business Credit Cards

    A small business credit card can be a convenient way to increase your company's purchasing power, enabling access to a revolving line of credit.
  4. Personal Finance

    3 New Types Of Credit Cards To Look For

    These three types of credit cards are becoming popular with customers looking to pay less fees and build up their credit scores.
  5. Investing

    Investing in Credit Card Companies

    Find out why investing in credit card companies requires keeping an eye on consumer indexes and the overall health of the economy.
  6. 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?
  7. 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.
  8. Personal Finance

    Best Credit Cards For People With Poor Credit Scores

    There are still ways you can build credit with a credit card, even if you have bad credit.
  1. What is authorized stock?

    Authorized stock represents the maximum number of common shares that can be issued legally by the company as stated in the ... Read Answer >>
Trading Center