Also called: Credit, Credit refund, Return, Credited
What a refund is
A refund returns money to your customer after a payment has been completed. You can return the full sale amount or just part of it. For example, if a customer paid for several items and returns one, you can refund that item's price without returning the entire purchase.
Your business reviews the request and initiates an approved refund through its payment system. The request follows the original payment path through the processor, card network and customer’s bank. Card refunds go back to the card used for the purchase; bank-transfer refunds go to the original account, and digital-wallet refunds go to the original wallet.
A refund returns the sale amount, but it does not return the processing fee charged on the original transaction.
How refunds work
A refund applies to a payment that has been captured or otherwise completed. If a card payment is still authorized but has not been captured, reverse the authorization instead. A reversal avoids unnecessary clearing and settlement processing and can reduce delays before the customer sees the funds released.
A refund request needs a reference to the original payment and must stay within the amount originally paid. You can issue multiple partial refunds, but their combined value cannot exceed that payment. Once a refund is processed, it cannot be canceled, so verify the amount and payment before submitting it.
Illustrative partial refund
| Original sale | $100 |
|---|---|
| Refund to customer | $30 |
| Original processing fee | Remains an expense |
The amounts are illustrative. The processing fee depends on your pricing and transaction.
What refunds mean for your costs and cash flow
A refund reduces your net sales for the period in which you record it, and the money leaving your account reduces available cash. If the refund falls in a later reporting period than the sale, your records need to show that timing difference.
The processing fee from the original sale is not returned when you refund the customer. For an illustrative $100 sale with a $30 partial refund, you return $30 and still carry the original transaction’s processing fee as an expense. Refunds also reduce the customer's incentive to dispute a purchase, though a refund does not itself erase a dispute that has already been filed.
When the customer sees the money
A card refund takes 5 to 14 business days to appear on the customer's account, depending on the card network and issuing bank. Weekends and public holidays can extend the wait. The refund may show as a credit or negative charge, and it can be hard to spot if it offsets a pending charge.
Where refunds appear in your records
Look for a refund entry, a negative charge or a credit tied to the original payment. Match the refund amount and transaction reference against your sales records and bank deposits. If the original sale and refund fall in different reporting periods, record the refund in the period it was issued so your sales and cash reconciliation reflect the change.
What you can actually change
- Check payment status. Confirm that the payment was completed before issuing a refund. If it is authorized but uncaptured, reverse the authorization instead.
- Match the original sale. Use the original payment reference and confirm the refund amount. Track partial refunds against the total paid so combined refunds do not exceed the sale.
- Reconcile the fee. Compare refund entries with deposits and sales records. Keep the processing fee from the original sale in your expense records, even when you return the full amount.
- Review refund patterns. Track refund reasons and amounts by product, service or location. Rising refunds can point to problems with quality, fulfillment, billing or customer expectations.
Frequently asked questions
How long does a card refund take?
Card refunds take 5 to 14 business days to appear on the customer's account, depending on the card network and issuing bank. Weekends and public holidays can add time. The refund may appear as a credit or negative charge, or offset a pending charge.
Do you get your processing fee back when you issue a refund?
No. The processing fee charged on the original sale is not returned when you refund the customer. The refund returns the sale amount, while the original processing fee remains an expense for your business.
What is the difference between a refund and a reversal?
A refund returns funds after a payment has been completed. A reversal cancels an eligible authorization that has not yet been captured. Reversing an open authorization avoids unnecessary clearing and settlement processing.
Can you issue a partial refund?
Yes. A partial refund returns less than the amount of the original payment. You can issue more than one partial refund, but their combined amount cannot exceed what the customer paid.