Progressive Payment Solutions

How the Difference Between a Void and a Refund Affects Your Business

Find out what actually happens when voiding and refunding takes place at your business–and which one you want to avoid.

We all make mistakes, including with a credit card purchase that shouldn’t have happened. There’s two ways to reverse this: voiding the transaction or refunding it. 

Which is better for your business? Let’s find out.

How it starts: two steps to every credit card payment

As soon as the credit card is swiped, inserted, or tapped, a whole series of events begins to take place. We’re not going to get into all of them (but if you really want to know, it’s all here), we’re just going to focus on two: authorization and batching.

Authorization happens almost instantly; it basically means either the customer’s issuing bank says their payment is approved or not, all within a few seconds. But the money isn’t immediately transferred to that business; rather, that happens after the second part: batching.

Batching (also called capturing or settling) happens where all of the approved sales from the day get transferred at once, normally at the end of the day. It’s after batching that the business actually gets paid from the sale/transaction.

Now that we know those two steps, we can understand the part that affects your business: the difference between a void and a refund.

What a void is

Voids are basically ways that your business can say ‘Oops!’ and nothing bad happens. If the customer didn’t want it, if you shouldn’t have charged them for something, if some other mistake was made–whatever the case, a void is where you simply reverse the payment before the payment is batched

Because it wasn’t yet batched, the payment is immediately reversed on their credit card, and won’t even appear on their transaction record after a few days. And most importantly for your business, you’re not negatively affected by the voided transaction at all (aside from a per-authorization fee of roughly ¢10). 

What you need to remember: A sale must be voided before the batching process at the end of the day, otherwise it can’t be undone. 

What a refund is

If a business tries to void a transaction after batching, they’ll soon learn it’s too late–and now it’s time for a refund. A refund is different from a void because it is a transaction that was batched. In other words, the payment went through all the steps, not just the ‘approval’ stage

That means it needs to go through every step that we didn’t mention at the beginning: the payment processor sending the transaction details to the card association, then the issuing bank, then the merchant bank. All of this takes time (usually two to three days) and is more expensive than just ¢10.

What you need to remember: While a voided transaction is almost free and happens in seconds, a refund takes two to three days and costs more money.

How voiding vs refunding affects your business

Any good business wants to save money while keeping their customers happy. Refunding does neither; voiding does both.

Voiding doesn’t allow the transaction to fully go through–so the customer doesn’t even notice it on their bank account, and you don’t hardly have to pay anything in fees.

Refunding lets the process get fully ‘settled’, which has two negative consequences:

  1. The customer is missing the money they didn’t want to go through since it takes two to three days to be transferred. 
  2. Your business has to pay both the entire processing fee of the customer’s payment and the processing fee for reimbursing them.

What you need to remember: Make sure everyone at your business voids any transactions that need to be reversed before the end of the day (when all of the payments get ‘batched’). Otherwise, your business will pay more money in transaction fees and inconvenience your customers.

How Progressive Payments helps your business

We want to help you save money everywhere when it comes to payment processing–not just avoiding refunds. 

That’s why we’re so excited to see thousands of businesses across the country embrace Cash Discounting (also called Zero-Fee Processing). This new way to process payments works in every state and lets businesses just like yours eliminate 100% of their processing fees. 

The average business saves hundreds to thousands per month with Cash Discounting. 

Want to know how much your specific business will save? Then check out our Cash Discounting savings calculator tool that will tell you how much your business will save in seconds. 

If you’re ready to start eliminating processing fees forever or just have questions, schedule a free meeting today.

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