In the recent past, we have encountered a few of our merchants who found themselves short of cash in their bank account but yet needing to refund their customer’s credit card. For the protection of the consumer, when you issue a refund, a credit or have a chargeback, your customer will receive the credit – whether you have the money or not. This doesn’t give you a free pass since you still owe the money.
Why Merchant Accounts Require Background Checks
Many new credit card processing merchants balk at the need for personal information such as home addresses and Social Security numbers for all owners of a business. The above scenario clearly illustrates why those who hold a Merchant Account and more specifically, access to the various networks such as Visa, MasterCard and American Express must be vetted and undergo and underwriting process. The bank doesn’t want to be left on the hook for your cash problems.
The Normal Refund Process
At the moment you process a credit or refund, this begins a collection and return process. Assuming your Merchant account is active with daily transactions, the money you refunded today will be deducted from new sales submitted within 48 hours. The credit you issue posts to your customer’s card immediately, whether you have the money or not. The Card Issuing bank, such as Wells Fargo or Capital One restores the transaction dollar amount to the customer’s credit line. On the back end, the Acquiring bank, such as First Data then returns the money they received from the Issuing bank when the original transaction was processed and collects the same be deducting the amount from your next batch of transactions submitted for payment. It all happens like clockwork and almost magically.
You Don’t Have the Money
Not having any new transactions can cause things to get sticky. With no submitted transactions to deduct funds from, the Acquiring bank will next look to hit your bank account and deduct the money. This can happen as soon as 24 hours later. In the even you don’t have sufficient funds in your bank account, the bank will continue attempting to either debit the money from your account when you do have the money or they will withhold the funds from a future settlement that has enough funds to recapture their money. Because this can happen anytime in the future, you should expect it. They will always recapture the debt when the time is right – for them.
