What is the difference between a refund and a reversal transaction?
What is a void transaction?
Understanding what a void transaction is and its causes to merchants.To some ears, void transactions might sound bad. (The dictionary does, after all, define ‘void’ as both an “empty space” and “not valid or legally binding.”) In payment processing, however, void transactions – if timed to perfection – can help your business sidestep big costs down the line.
Below, we’ll explain exactly what void transactions are, why they happen, and how to both action and prevent them. We’ll also cover how a void differs from a refund. And how, if timed correctly, a void transaction can prevent chargebacks – and save your business money.
Void transaction explained
A void transaction is one that is cancelled by you, the merchant, before it’s settled with your payment provider.
If you void a transaction, you won’t pay any credit card processing costs (such as per-transaction fees), nor will your customer be charged for the amount of the purchase.
The only catch? You can only void a transaction after it’s been authorised, but before it reaches settlement. Once a transaction has been settled with your payment processor or merchant services provider, it’s complete. Meaning it can’t be voided – only refunded.
Let’s say, for example, you run a boutique clothing store. You’re selling a dress for $150, but – as your customer hastily taps their phone over the card reader to pay, and the payment goes through – they notice an error. You’ve accidentally added an extra zero – overcharging them $1,350 in the process. But the customer’s already paid. What to do?
In this scenario, you would choose to void the transaction. You won’t pay any processing fees on it, nor will your customer’s account be debited for the overcharge. The alternative? Having to wait until the payment is settled, then refund the customer – while paying for the privilege.
What causes a void transaction?
There are several reasons you might need to void a transaction. These include:
- Customer request: consumers are fickle, and they change their mind about purchases – some mere moments after they make them. If this happens, you may choose to void the transaction to avoid administrative hassle (and potentially a chargeback) later on.
- Incorrect transaction details: if you come across an error in a transaction – charging the wrong amount, maybe, or a discrepancy in customer details – you can choose to void it.
- Suspected fraud: if a transaction has been flagged as fraudulent, or seems fishy – even after going through – voiding it could be the best way to mitigate risk.
- Ordered goods not available: if a customer orders and pays for an item, but (due to inventory management issues, perhaps) it isn’t actually available, you can choose to void the transaction. (Rather than process, then later have to refund, the payment.)
Difference between a void transaction and a refund
A void transaction occurs before a transaction is settled, but after it’s been authorised (often immediately so).
When you void a transaction, you essentially strike it from the record. The customer isn’t charged for the purchase; you’re not charged to process the payment.
Basically, no money changes hands. The payment will remain visible in the customer’s banking app (albeit in ‘pending’ or ‘processing’ status) for two or three days – after which it’ll disappear completely.
A refund, however, can only take place after a transaction has been settled. The customer has already been charged; you’ve already received the funds, and been eligible for the associated payment processing fees. The refund will also appear on your customer’s statement, along with the original purchase, as money credited and debited.
A refund is, essentially, the reversal of the initial purchase: with the funds being returned to the customer’s account from yours. This can take up to 30 days.
How to void a transaction
Need to void a transaction? The exact process depends on the merchant services provider or payment processor you’ve picked to take payments with.
But in most cases, voiding a transaction looks something like this:
- Verify if the transaction is eligible for voiding. First up, you’ll need to make sure the transaction can be voided. If it’s in the authorisation stage, you’ll be fine to go ahead.
- Act quickly to ensure the transaction doesn’t slip into the settlement stage – after which it’ll need to be refunded, rather than voided.
- Contact your payment processor to request a void. You can do this over the phone, but with most processors it usually involves logging into your merchant services dashboard and locating the transaction (via the time and date, the amount, or the transaction’s unique ID). When you take payments with Checkout.com, our void API makes voiding a payment as simple and seamless as possible.
- Follow your provider’s instructions. How exactly you void a payment will depend on the payment processor you use. So let them lead you, and follow their prompts – you may need to provide more information about the transaction before they can void it.
- Update your own records. Often, this will happen automatically – particularly since most payment providers help you manage your payments with real-time dashboards. So, once you receive confirmation of the void, ensure this has been reflected in their system – and that your own records are up to date.
How long does a void transaction take?
How long does a voided transaction take to clear? Well, that depends on several factors: such as your payment processor, and when you issued the void.
Usually, however, the purchase amount will be made available to the customer immediately.
Similarly, any record of the void transaction – which initially will display in the cardholder’s account as ‘pending’ or ‘processing’ – will typically vanish from their account within a couple of working days, never to be seen again.
Can you void a credit card transaction?
Yes, you can absolutely void a credit card transaction.
The only thing to bear in mind is that timing is of the essence – and to successfully void a credit card transaction, you’ll ideally to need to do so immediately after it’s happened.
You won’t be able to void a credit card transaction if it’s already been settled – and when exactly that happens depends on the payment processor you use, and its batching policies and protocols. If the transaction has reached settlement, a refund will likely be your only option – and could also open the door to a taxing credit card dispute.
Can you void a debit card transaction?
You can void a debit card transaction, but the same best practices around timing remain.
If you want to void a debit card transaction, aim to do so as soon as possible after that transaction has taken place, using the steps we outlined above. The longer you wait, the trickier a void transaction becomes – and the likelier it is you’ll have to refund the customer, instead. (And potentially, risk a chargeback.)
How to prevent void transactions
Void transactions aren’t the end of the world – especially since the alternative, a refund, tends to be more time- and resource-intensive.
However, there are steps to reduce the likelihood of void transactions, and the effort they involve. To prevent void transactions, you can:
- Strengthen your fraud detection protocols: by identifying potentially fraudulent activities and transactions before they happen – rather than after – you avoid having to void them (or worse, risk them reaching settlement, then leading to a chargeback).
- Verifying and maintaining precise customer information – and do so throughout the entire transaction process. By training your staff to enter transaction details accurately – including the correct product codes, amounts, and the customers’ details – you can minimise errors that may end up in void requests.
- Consistently monitoring and updating your payment system. Fraudsters are always keeping pace with the industry – so your payment processor needs to be an extra step ahead. Reach out to the company you take payments with, like Checkout.com, to learn what they’re doing to ensure the reliability and security of your transactions.
- Establishing transparent refund and cancellation policies. Stay on the same page as your customers by clearly laying out their rights – and all the relevant timelines – when requesting refunds or purchase cancellations.
How void transactions help your business avoid chargebacks
While some might see void transactions as just another process chewing up time or resources, void transactions can actually save your business money.
That’s because, if fraud has occurred – and, worse, has gone undetected – it can lead to a chargeback. This is when the real customer, noticing the illegitimate purchase made with their (stolen) credit card, raises a dispute with their issuing bank.
If the payment has reached settlement, the customer’s only real recourse is to raise a chargeback which, if upheld, can result in damaging financial losses for you. If the payment hasn’t reached settlement, though, you can simply cancel it, right then and there, by voiding the transaction.
There’s also a scenario in which you can void a transaction to reverse a chargeback. If, for instance, a chargeback has already been initiated against an as-of-yet unsettled payment – and you agree with the customer – you can void the transaction. This cancels the payment, and stops you from having to go through the laborious chargeback representment process.
To learn more about how to win credit card disputes – and how to combat chargeback fraud – dive deep into our comprehensive guides.
Checkout.com helps your business avoid chargebacks
Here at Checkout.com, we’re committed to helping your business avoid chargebacks – which is why our payment processing solution comes with an in-built suite of fraud detection tools.
We harness advanced machine learning to detect fraudulent trends – then deploy the defences your business needs to repel them. All while minimising false positives when it comes to non-fraudulent transactions – and safeguarding your legitimate business.
Want to know more about what we’re doing to protect your business’s payment processing?
Get in touch with our team today to start the conversation.
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