Where’s My Money? 3 Ways to Avoid Delays in Processing Refunds and Correcting Errors
Anyone who’s worked retail has likely made a mistake while charging a credit card. This can create a headache for customers, staff, and management. For most people the first reaction is to simply void the transaction and start over. The problem with this approach is you’re usually left with the customer asking why they were charged twice, asking for a refund and having to explain that “They’re just holds, the voided one will fall off in 3-5 business days.” While this may be true, the customer is left frustrated, and you are left without options. In this post, in addition to explaining the void we want to talk about what your options are, when they should be used and why.
1. Void
When I worked my first retail job, I was trained that if I messed up a transaction, I should void it and do it again. It’s a way to quickly clean up an otherwise costly mistake, but what is it? To start we need to explain the main components of a credit/debit sale. The first is the Authorization, when the card is ran, an authorization request is sent to the cardholder’s bank or credit card company to verify the funds are available. If the authorization comes back approved the funds are placed on hold in the customer’s account, a receipt prints, and for the cashier and the customer, the transaction is complete. But for the banks, the transaction isn’t finished. The terminal stores the transaction and (usually) at the end of the day completes a batch settlement. When a transaction is settled is when the funds are “captured” meaning a request to transfer the funds is sent to the cardholder’s bank.
When you process a void, the authorization sits with the cardholder’s bank, untouched, but the transaction is cleared from the terminal, so the funds are never captured, meaning no money has left the cardholder’s account and the hold will drop off the account. Usually in 3-5 business days. This is great if you just need to process a quick correction, but sometimes multiple holds on an account can pose a problem. Especially when those transaction amounts are high. While the money hasn’t left the account, the bank has placed it in reserve for a pending authorization, and says the customer can’t use it for other things until the hold falls off. If this is a problem, the cardholder can call their bank, have the bank verify with the business that the transaction was voided, and the hold will be released. I’m sure right now you’re thinking, “There has to be a better way.” And there is.
Pros: Quick and Easy, all terminals and online gateways are capable of voiding transactions
Cons: Funds are held until bank removes the hold (3-5 business days), only works on same day transactions (before batch/settlement) *DOES NOT WORK FOR PIN DEBIT TRANSACTIONS
*Problem with voiding Pin Debit: Pin Debit authorizations don’t work in the same was as a credit card. When a pin debit authorization is received by the bank, the funds will transfer, even when voided. If the transaction has been voided from the terminal, the merchant’s processing bank loses the routing information on the transaction, and often the amount, while removed from the customers bank account, ends up in a financial limbo of sorts. The funds are kept by the bank until the transaction can be corrected and routed to the merchant’s bank account. This process, in our experience, can take 3-4 weeks. To avoid this, for Pin Debit, you have to Reverse or Refund the transaction. This same process can occur on a Pin Debit chip transaction when a customer has entered their Pin, then removes their card before the transaction is complete, as the authorization has already been sent, but the transaction is interrupted in the terminal, causing the terminal to void the transaction. If this happens, call your processor and ask for them to initiate an inquiry.
2. Reversal
Whereas a void just wipes the transaction from the terminal, a Reversal works like an Authorization in reverse. When processing a reversal, in addition to clearing it from the terminal, it also sends a notification to the cardholder’s bank to release the held funds. In a partial reversal, only part of the hold is released and the transaction is processed at the new amount. This avoids multiple authorizations, and the customer having to wait for their money to be released, or going through the hassle of calling their bank to release the held funds. The disadvantage to a reversal in that, like a void, it must be completed prior to the batch settlement. In the event that funds need to be returned after the batch settles, really the only option is to refund. In terms of correcting errors, reversals are generally the best option.
Reversal for Pin Debit – With a Pin Debit transaction you cannot void the transaction, as it doesn’t work in the same way. For same day transactions (before batch/settlement) you will need to process the transaction as a Reversal. If your terminal is not capable of processing a reversal, you may need to process the correction as a refund. In this case, consult your Merchant Services Provider to see what your options are.
Pros: Quick and easy, funds are released in the customer’s bank account
Cons: Not all terminals support reversal capability, must be processed same day (before batch/settlement)
3. Refund
When a transaction has already been captured, the only option the merchant has is to refund the amount to the card. A refund works like a transaction in reverse. The card is swiped or keyed in, and a refund is created in the terminal to transfer funds to the cardholder’s account. Just like an Authorization, the capture of a refund isn’t processed until the terminal batches out. From the time the capture is processed, it can take 3-5 business days for the funds to appear in the cardholder’s account.
Pros: reliable way to return funds to customer
Cons: Funds can take 3-5 business days to hit the customers account
If you have questions, or would like a free review of your existing merchant account contact us by email at info@agapay.gives or by phone at (800) 644-3909.