Processing Refunds on Credit Cards

Processing Refunds on Credit Cards

Processing Refunds on Credit Cards

Honestly, I was a bit surprised to see how many of our customers are actually processing refunds on their credit card machines or through Lizzy. I just assumed that everyone had thought that practice through. So I wanted to take a few minutes to explain to you why this should NEVER be done.

When you process a credit card normally, you pay a fee to the credit card company. I know you all know this but I’m sure most of you don’t actually take the time to watch every single fee that gets charged as we just don’t have the time. So lets take customer “Bob” coming in to buy a gadget from us and it costs $100.00. We happily take their card and run it through our machine. We make $10.00 profit on this item so are glad to move it out the door.

However, our credit card processor makes 1.6% on all sales running through their gateway which means they are going to take $1.6 from us when they run the charge and approve it. So now we’re down to $8.40 profit on the sell. Not as happy as before but we’re still happier than we were before the customer came in.

A few days go by and “Bob” decides that he actually doesn’t need the item and he wants his money back. We not so happily take his item and run his credit card for a negative amount in order to give him his credit due. “Bob” leaves and we sit thinking about what we just did.

We sold him an item that we were going to make some money on but then gave him 100% of that money back. The credit card company could care less about our customer so they keep their $1.60, but it gets worse. Unlike actual business owners that care about their customers and give them the money back when they are not happy with a product we sold them, the credit card company actually runs what in mathematics is called an ABS on the total fee returned and charges you again. What is ABS? It’s that old absolute value stuff we learned in high school all those years ago.

So now lets take a look at what that means:
Original Sale: $100 * 1.6% = $1.60
Refund: abs( -$100 ) * 1.6% = $1.60
—————————–
Total Charge: $3.20

On a part we never made a penny on. So I’m sure when you posted that credit card you just assumed that your credit card company was going to politely give you your money back just like you did for “Bob”, but they just don’t work that way. So my advice? NEVER EVER EVER DO CREDIT CARD REFUNDS!!! Write them a check or give them cash back instead. You’ve already lost money on the sale, why double the loss?