Issue refunds via check?

instead of crediting credit cards

[wayzel]

Currently we issue refunds back to the same credit cards used on the original purchase. Our merchant account provider charges the same transaction fees on these credits as they do on the sale.

If we send refunds via check instead, are there any downsides to this from a chargeback avoidance perspective? Our idea is that we would send a .pdf copy via email to the customer and put the original in the mail. We're willing to deal with the occasional lost check, postage, and overhead associated with this.

[LifeinAsia]

are there any downsides to this

Yup! They can still do a chargeback. Here are a couple of scenarios:
1) They get check and cash it and still do a chargeback. Credit card company doesn't accept the refund issued that way (some processors may actually state that the refund MUST be issued back to the card).
2) They get check and cash it (but not at their own bank) and still do a chargeback saying they never received the refund.
3) Original charge was a fraudulent charge by someone other than the card holder. You send the check to the fraudster. The cardholder issues a chargeback. (Granted, this could probably be avoided if you only send the check to the billing address.)
4) Employee uses corporate card, then gets refund check from you. Employee leaves company. Company issues a chargeback for the charge on the card since they were never refunded.

There are other scenarios, but those are off the top of my head. In summary- don't do it.

[edited by: LifeinAsia at 12:45 am (utc) on Mar. 7, 2008]

[mangotude]

Downside

5) You've just lost me as a repeat customer.

I'd be tempted to not cash the check but issue a chargeback instead, frankly.

[Wlauzon]

There are at least 2 major exceptions to "don't do it".

1. the card was used in fraud and was cancelled, or was cancelled for some other reason.

2. the transaction is over 30 days old, in which case it may not allow you to back the transaction out.

But aside from that 97% or so are refunded to the orginal CC.

We don't do a lot of refunds, but occasionally even the best of us run out of things :)

[sun818]

Wouldn't a transaction fee be about the same price of mailing a refund check? I don't see the benefit of issuing a check versus refunding back to their card. Credit back is easier, trackable, and faster than check. There's too many downsides to issuing a check. We only issue a check if a credit back is not possible. For example, the warranty period is longer than the allowable refund period on cards. The other reason would be the customer used a different payment method like Check.

[wayzel]

Thanks everyone. The overwhelming response on this board is "don't do it" and that's pretty definitive! Our rationale for considering it was that our average refund is around $100, is requested 6 to 8 weeks after the sale, and costs us $4 in merchant account processing fees. Without all the good points brought up, we would have thought saving the few thousand a year in fees would be worth it. However, it is clear that other expenses would outweigh these benefits. Regarding the "losing a customer comment" yes, that is true, but if you get a refund from us, we usually don't want to do business with that person again either. We sell only one product; if you didn't like it the first time, you won't like it either later.

[sun818]

You know I was curious about what you meant by "transaction fees" in your original post. Am I correct in understanding that your merchant account charges you a percentage on top of a standard transaction fee (like $0.35?). It seems like double dipping if they charge a percentage of the credited amount. That doesn't seem right. I know I am only charged a transaction fee ($0.35) and a gateway transaction fee from Authorize.Net ($0.10).

[LifeinAsia]

For us, Visa/MC transaction fees are charged in both directions (charge/refund). AMEX's fees are on the charge (and they actually used to refund fees on refunds!). Not sure about Discover.

[wayzel]

We are charged fees for both sales and credits, so yes, in essence it is double-dipping. So, a $100 purchase/refund cycle costs us 2x

Sun818, unless I'm missing something, there must be a percentage you pay besides the $0.35. (x% + $0.35) otherwise, whether you process a $10 sale or a $10,000 sale, you would pay only pay a flat $0.35 to your merchant processor?

[sun818]

Capture & settle = $0.35 + $0.10 + percentage

Refund (credit back) = $0.35 + $0.10

I pay for initial capture & settle. I don't pay a percentage for refunds.