The Essential Merchant Guide to Card Payment Refunds

Buyers need not only an understanding of the benefits and value of what you are selling, they also need clearly stated billing, return, shipping and other policies important in their decision making process. This guide will focus on the essentials of a card payment refund policy:

  • Setting a Return Policy
  • Refund Best Practices
  • Handling Refund related Chargebacks
  • Beware of Refund Scams
  • Lower costs with Credit Voucher Interchange

Setting a Return Policy

A good return policy can help close sales. Your return policy or lack thereof can justify higher or lower cost as reflected by higher or lower risk of buying from you in the mind of your customer. Your return policy can even define your brand - think Nordstrom.

Handling refund requests in a way that makes good business sense and achieves 100% customer satisfaction is the goal. Consider your options. Will you offer a full refund, in-store credit, exchange only, or are all sales final? The complexity of your return policies will vary depending on your business.

Consider what you sell and who your customers are when establishing a return policy. Begin by reflecting on the value of the goods or services you are selling. Will you require the original sales receipt? Are there any time or condition requirements for acceptable returns? Who pays return shipping? Put yourself in the customer’s position and test your policy by getting feedback from friends and family. How would you feel about doing business under these conditions? Will your policy seem fair and make sense to your customer?

A store credit towards a future purchase is common and seen as an acceptable policy to many buyers. An alternative use of gift cards is to issue them for awarding in store credits. Gift cards can be a great way to retain revenues and provide customer convenience.

Refund Best Practices

Once you have developed your return policies, do not bury them deep within your web site or in the fine print. Be open and up front. Accepting card payments is a convenience form of payment, not a guaranteed form of payment. All the rules and regulations are written in favor of the cardholders. Therefore, it’s very important to protect your interest with these best practices:

  • The most important thing you can do is to document that the cardholder was aware of and agreed to your return policy. Specifically, the cardholder's signature must appear on the sales receipt near the cardholder’s signature line. This is especially important if your policy is “All Sales Final”. Make sure that this phrase is clearly disclosed on the sales receipt near the customer signature line. The cardholder's signature should also be obtained next to your refund policy disclosure printed on any related document, such as a contract, invoice or customer agreement.
  • Merchants may post their return policy at the point of sale visible to customers, on their web site, in a catalog or verbally on the phone; however, evidence of proper disclosure requires the cardholder signature.
  • The best practice for online transactions is to include your refund policy automatically as part of the check-out process. Use a “click to agree” button or have your customer type their initials next to your refund policy disclosure before completing the transaction indicating that they agree to your policies.
  • If a return is as allowed by your company's return policy, make sure your managers are trained to issue a credit to the same card account that was used for the original transaction. A best practice is to staple a copy of the original sales receipt to the refund receipt highlighting the matching last 4 digits of each card number for your records. Do not refund cash when a credit card was used. Without an offsetting credit, the card issuing bank has no evidence of a refund and may still pursue to have a chargeback reverse the sale. In this case, you run the risk of having two refunds processed.
  • If the item's value is particularly high, the best practice is to request that the buyer return the item to you first, according to your refund or exchange policy. A best practice recommendation is to require that your customers obtain a return merchandise authorization (RMA) number that you supply before they send the item back to you. Additional requirements help to prevent frivolous returns.
  • If a refund is mistakenly issued to the wrong card, it is best to VOID the transaction. If the error has already become a settled transaction then contact your merchant services provider and request that the credit be reversed. Do not attempt to offset the credit by running a sale.
  • Be cautious with gift returns. In cases where a gift recipient has returned a gift, the best policy is to offer an in-store credit or exchange. Do not return cash. Retain your documentation in case the cardholder claims a credit was not issued to his or her account for the gift.
  • If a customer is requesting a refund but you are unclear if you’ve been paid for a card sale, contact your merchant services provider. Once you have confirmed that you have not been paid for the sale transaction, the best practice is to instruct the cardholder to contact his issuing bank.

Handling refund related chargebacks

Because card payments are subject to chargebacks, refund requests that go unaddressed, or are not handled in a way that is satisfactory to your customers, can lead to chargeback disputes. A chargeback means that the amount of the original card sale that was deposited into your business checking account is taken back out. In disputes, payment card issuers will look to see how clearly your policies are stated to the cardholder. Is it reasonable to expect that they purchased with full knowledge of your return policy? And the key to this is the signature evidence next to your refund policy disclosure.

Note that if you maintain a policy such as “No Refunds” or “All Sales Final” the product or service is still expected to work as advertised and be what was ordered; otherwise, merchants still face "Not as Described" chargebacks. "Not as Described" chargebacks are most common due to defective merchandise or service disputes.

Quick Reference Helpful Hints:

  • Make customers aware of return policies and procedures.
  • If a customer disputes a transaction for this reason, they must first attempt to resolve with you. Always keep full detail and accurate records.
  • Insure package delivery for breakage.

“Credit not processed” chargebacks occur when the cardholder alerts their issuing bank that they have requested and are due a refund which has not been credited. In some instances, a merchant issues a credit voucher yet it has not appeared on the customer's online or card statement.

Quick Reference Helpful Hints:

  • Always put the return policy near the signature line of the sale receipt (signage at the point of sale is not enough to meet the rules and regulations of the card association).
  • Never give card payment credits in cash or check.
  • Never give credits on items if you are unsure if the sale was made from your merchant account or if it has been paid to you. Customers presenting their credit card statements or print outs from their bank are not presenting sufficient evidence, and in these cases you should instruct your customer to contact their card issuer with a dispute.

If a credit is issued to the cardholder before you receive a chargeback notice, respond to the chargeback with your documentation that a credit has already been granted.

If the chargeback is initiated before you issue a credit (customer contacts their issuing bank before contacting you) then respond with documentation containing signature evidence that the cardholder agreed to your return policy. Also indicate whether or not the cardholder has followed your return procedures or if they have returned or are still in possession of your goods or services rendered. If you agree to the refund in this instant, you should accept the chargeback. Do not issue a credit on top of a chargeback as this will create a duplicate “refund”.

Beware of Refund Scams

Make sure that end-of-day batch reports match the deposit to your bank. If a refund is present within a batch total then make sure there is supporting documentation for the refund. A best practice is at least a monthly audit of all refund transactions – matching original card sales and card numbers to approved refunds and card numbers.

When available on your point of sale device, password-protect the refund function. Only allow managers to perform card holder credits. And beware of employee theft! Elaborate criminal embezzlement schemes from bookkeepers have been uncovered where card refunds are issued to personal or conspirator card accounts, sometimes in place of legitimate authorized customer returns and others on invented entries.

Take notice of debits to your business checking account. Make sure the debits are not a result of unauthorized refunds being processed through your merchant account. If you notice suspicious refunds to credit cards then contact your merchant services provider immediately. With the help of the card issuing fraud department, they may be able to determine if the card being refunded has a pattern of fraudulent refund activity.

Lower cost with Credit Voucher Interchange

One way to lower your bottom line costs of accepting credit and debit card payments is to have the credit voucher Interchange returned when you process cardholder credits. Don’t overlook merchant rate savings from cardholder returns. Credit Voucher Interchange should be returned to the merchant when credits are processed. In doing so, the original fees billed for processing the card sale are offset by the return of fees back to the merchant when a refund is issued on the card.

Merchants should check their merchant processing statements, calculate their annual cardholder return volume and identify how they are billed for processing cardholder returns. Don’t leave savings from credit voucher Interchange on the table. Merchants should seek a direct Interchange pass through billing from their merchant account provider. However, not all Interchange pass through rate programs are the same and many do not return the credit voucher Interchange. Get a quote now at to see the Visa, MasterCard and Discover card credit voucher Interchange rates.

by Ty Hardison

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