If you're like most people, you don't give too much thought to the process of issuing refunds to your customers for credit card purchases. After all, it's a pretty easy process - just swipe their card through your machine and follow the steps to initiate a return of their purchase. The funds will be credited back to your customer and you'll be issued a refund for the original processing charges, right?
Do you check your processing statements each month to make sure that you're being refunded for processing fees? Would you know what to look for on your statements even if you took the time to look? An alarming number of credit card processors don't refund processing charges on returned purchases like they're supposed to. To make matter worse, many not only fail to refund processing charges - they charge their merchants again for issuing a refund. That means merchants are paying to processing the original transaction, losing money by returning the customer's funds and then they're paying processing fees again to process the refund.
Mishandled refunds are a very costly oversight for merchants and a profitable one for credit card processors. For the sake of argument, let's pretend that a fictitious business processes roughly ten credit card refunds each month totaling around $500. We'll assume that their average rate is 2% plus a $0.25 transaction fee.
In a case where the credit card processor is charging for refunds without returning the original processing fee, this merchant would be overcharged $25.00 each month. If the processor is not charging for refunds but still failing to return processing fees, the merchant will be overcharged $12.50 each month. In the worst case scenario, our pretend merchant could be losing as much as $300 a year.
Paying for refunds is simply unacceptable, and it's a perfect example of the type of behavior that has given the credit card processing industry a bad reputation. Not all credit card processors fail to return processing fees or charge for refunds, but it's an assumption that you can't afford to make - literally.
If you're unsure of how your credit card processor handles the refunds on your merchant account, closely analyze your processing statements to determine if processing charges are being credited back to you properly. Call you agent or representative if you're not sure how to determine the way in which refunds are being handled by reviewing your statement.
Make sure they explain things to a degree where there's no doubt in your mind that refunds are being processing correctly and that you're being credited for processing fees on returned sales - and that you're not being charged twice for issuing refunds.
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