What Is Payment Reference

A payment reference number is a unique set of numbers and letters that is applied to a financial transaction. The transaction in question could be a bank transfer, a direct debit, a standing order, or simply a payment made using a debit or credit card. If you are a merchant it’s vital that you understand how a payment reference works in order to keep accurate records of the cash flow moving in and out of your business, and of the individual payments made by customers who may wish to seek a refund or query the amount taken from their account. 

How payment reference numbers work

Initially, a payment reference number is created automatically and is assigned to just a single transaction. This is an important distinction to bear in mind – a reference number doesn’t apply to anything as broad as an individual customer, account, payment method or range of products. Instead it is linked to a single transaction, no matter what the size of that transaction is. If a customer uses a debit card to purchase one item for £2.50 it will create a payment reference number in the same way that the same customer using their debit card to purchase 25 items for a total of £2,500 would. 

Once the reference number has been created and assigned to a transaction, it makes it much easier for any business to track and monitor all transactions associated with a particular card. The payment reference number will also be included on the account statement provided to the customer by the credit or debit card company, usually on a monthly basis.   

The purpose of a payment reference number

Any financial institution has to deal with huge numbers of financial transactions, often running into the millions. Giving a reference number to each individual transaction means that these huge numbers of transactions are easier to track, control and monitor, providing them with the kind of data that enables them to deliver the services their clients need. When this information is relayed to a customer in the form of a regular statement, the financial institution in question – usually a bank or a credit card company – will explain exactly what the reference number is and how to understand each section of the statement. 

How to use payment reference numbers 

A payment reference number enables customers to interact more efficiently with the customer service representatives of the financial institution involved. And any merchant may wish to query a payment that has come up on a statement, or look up a payment one of their customers is querying, perhaps on the basis that they don’t recognise having made the transaction. 

If the payment reference number is given to the financial institution, they will be able to find the transaction in their own database, meaning they can provide details such as the date of the transaction, the amount paid and the store where it was made, on the basis of a simple row of numbers and/or letters. 

The payment reference number also enables a customer to confirm the location of any card terminal used and who owns that terminal. If it seems that a fraudulent transaction has taken place the transaction number can be used to void the payment while investigations are made.  

We can help 

With GoCardless you can 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, or get started today.