Reversing a Credit Card Transaction: Is it really that bad?

March 09, 2019

Reversing credit card transactions are a necessary part of dealing with customers, but it does come with some pitfalls if not understood correctly. Let’s explore this fascinating aspect of dealing with credit cards.

Let’s say the customer wants a “refund”, be it either a few hours or a few days after a purchase. This is a big difference and changes how you have to process it. If it is the day of, there is no such thing as a refund at this point for credit card purchases because no money has changed hands yet. How you proceed does affect you and your customers.

We first need to understand that reversing a charge is either started by the merchant or the customer.  

Transactions reversed by the customer is called a chargeback. This is when the customer refutes the charge with their bank or credit card company. Chargebacks can have wide-ranging effects on business (fees, fines, and possible loss of account). It is best to lessen these whenever possible.

Transactions can be reversed by the merchant (true, usually at the customer’s request) using three methods, a void, a reversal, or a refund. Knowing the characteristics of each can greatly affect you and how your business interacts with customers.

For businesses to decide which to do, we need to know first when it being done. As you know, businesses “batch”, or settle, their charges at some point. Usually, it is at the end of the business day. If you have a charge that needs to be refunded/reversed you have two options if it is before the batch (void or reversal) and one if it is after (refund).

VOID

This is what most businesses use as the go to approach for refunds as it existed first, but we do not recommend it! It simply removes the transaction from the batch so it will not be sent on to the bank for payment. However, the hold placed on the customer’s card is still there. It usually takes 3-5 business days for it to remove the hold on the customers credit card (it can take up to 14!). This can be very upsetting to the customer, resulting in a bad experience with the merchant.

REVERSAL

This is the option that is best for everyone. A reversal, like the void, can only be done before charges have been settled, or batched. But the benefit of the reversal is that is also removes the hold on the customer’s credit card. This is the option you should choose, as a merchant, 100% of the time!

REFUND

A refund is needed if the transaction has been settled, or batched, by the merchant. This means that a customer coming back a few days later will indeed get a “refund”. This process is as simple as getting the merchant bank to transfer money back to the credit card bank. The customer simply sees it as a credit on their statement/account. It takes 3-5 days to process, but is relatively simple.

For more information to understand if reversal is a better option for your business contact us! Talk to Agapay (800) 644-3909 or send us an email to [email protected]

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