Merchants can save money by understanding the difference between a void transaction and a refund and when each should be applied. Both voiding and refunding are ways to cancel or reverse a transaction, but they differ in terms of when they can occur, how they are processed, and how much they cost to do.
The transaction process
When a customer makes a credit payment, their money doesn’t instantly move from their account to the merchant’s account. First, the customer’s account must be verified to ensure it is valid and that it has sufficient funds available to make the payment.
Once verified, the money will be deducted from the customer’s available balance, but won’t be immediately transferred to the merchant. Instead, the funds are held until the merchant settles their transactions at the end of the day. During this time, before the money has been transferred, both the customer and the merchant would still be able to void transactions and prevent them from processing any further.
Typically, a merchant will settle out their point-of-sale systems at the end of the business day, and it’s only once this takes place that funds can be transferred from the customer’s account to the merchant’s. Some merchants may have auto-batching systems in place that automatically settles a machine at a specified time of day, while others may choose to do so manually.
Whether online or in-store, if a customer requests a refund on the day of purchase – before settlement has occurred, then the transaction will be voided rather than refunded. If they request a refund after settlement has taken place, then it will be an actual refund, as the process of transferring the funds from one account to the other will have already been initiated.
Credit card void vs. refund
It is worth noting that only credit transactions are able to be voided. If the transaction was made using a debit account, then it can only be refunded, not voided. While payments may not be immediately processed, with debit transactions, the money is taken from the customer’s balance instantly - there’s no holding period like with a credit transaction.
Credit card transactions can be either voided or refunded depending on if the sale has been settled.
How does voiding save you money?
Credit card transactions generally come with a processing fee, which is charged only once a sale is settled. In addition, settling a machine itself can come with processing fees, and processing a merchant refund also comes with its own fee. That means that whenever a merchant processes a refund, they’ll have paid fees for the sale, the settlement, and then for the refund.
Voiding, on the other hand, doesn’t come at a charge. Because you’d be voiding the transaction before the sale is settled, you wouldn’t need to pay the processing fees for the sale. That means when voiding, you’ll only pay the fee for settlement – not for the sale or for a refund. With that in mind, when possible, voiding is always a more cost-effective option than refunding for merchants. Sale and refund fees aren’t huge, but they can quickly add up over time, so it’s important for merchants to remember that voiding a transaction before settlement is always preferable to refunding.
How long does a credit card refund take?
Credit card refunds will typically take between three to seven business days to be completed, once the merchant has processed the refund. The initial sale will remain present on the customer’s bank account statement, and once the refund is processed, they’ll see a separate transaction with the refunded amount going back into their account.
How long does a void transaction take?
If a transaction is voided, no money leaves the customer’s account. As soon as a transaction is initiated, funds may be removed from the customer’s available balance on the bank statement – but no money actually changes hands. The transaction will appear as “Pending” on the customer’s statement and will remain “Pending” until settlement takes place.
Should the transaction be voided, both the “Pending” and the charge itself will be removed from the statement – voided transactions do not appear on a bank statement. Sometimes, a void may take a few days to process, but typically they’re processed as soon as the merchant settles out at the end of the day. Once voided, the transaction should disappear from the customer’s bank statement within 24 hours.
Processing times may also vary depending on your bank or credit card company, but generally a void should never take more than four business days.
Cancelled check vs. voided check
Voiding a transaction is one place you may see the term – but what does void mean on a check? A voided check is a check that was written in error, either to the wrong recipient, for the wrong amount, or otherwise. Checks are marked with the word ‘void’ to ensure they cannot be accepted as payment.
A cancelled check is simply a check that has already been cashed in and cleared by the bank, so can no longer be used. Checks are ‘cancelled’ to ensure they cannot be used more than once. Meanwhile, a returned check is one that has not and cannot be cleared by the bank – typically due to insufficient funds in the payor’s account.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.