A Guide to Avoiding Payment Reversals

Payment reversals challenge organizations of all sizes. Many companies even allocate a monthly budget to payment reversals. They may be a frustrating part of your own business—and depending on your organization’s services or products, you may have a higher likelihood of experiencing payment reversals.

The good news is that avoiding payment reversals is possible. This guide explores all aspects of payment reversal and solutions your organization can implement to minimize your risk.

What Is a Payment Reversal and Why Does It Happen?

While a payment reversal can happen for a few reasons, the direct cause is the initiation of a request by a cardholder, issuing bank, acquiring bank, merchant or card network. A payment reversal on a credit card is not uncommon. Some reasons why payment reversal happens include:

  • Unmet expectations: If consumers feel your product or service doesn’t match what they paid for or expected based on the description, they can submit a payment reversal.
  • Customer-initiated issues: Consumers may change their minds after purchase and no longer want to leverage your products or services.
  • Fraudulent reasons: A consumer may reverse a payment in an attempt to make a fraudulent transaction.
  • Incorrect charges: A payment reversal may occur as a response to the wrong amount of money being taken from the cardholder’s account.
  • Missing information or duplicate transactions: Many fields are involved in payments. If information is missing or incorrect, you may need to reverse charges. Reversals may also be necessary in the event of duplicate transactions.
  • Stock issues: If you are in e-commerce, items may sell out before they are delivered—so the consumer may need a refund for the unavailable products.

All payment reversals should be a concern for your organization and an opportunity to explore ways to optimize your processes. Payment reversals may indicate:

  • Operational failings
  • Product or service issues
  • Inadequate safeguarding against fraud

Payment reversals go beyond the financial implications of your organization needing to return funds and pay associated fees. Depending on the reasons for reversal, your business could face reputational harm and lose customer loyalty.

Types of Payment Reversals

Three main payment reversals exist—authorization reversal, refund reversal and chargeback reversal.

1. Authorization Reversal

Authorization reversal is reversing a payment before it has been fully completed. The automated clearing house (ACH) network is often limited and slow, so pre-authorized transactions are conventional. Pre-authorized funds may take days or weeks to transfer from the customer’s account to your bank account. This delay occurs because the customer’s bank needs to authorize the transaction and specify the funds for the payment. The wait provides a window of opportunity to stop a transaction before money leaves the bank account.

Authorization reversals can happen in various scenarios, including a merchant spotting a mistake in the amount keyed in or the consumer wanting to change cards or payment methods. Depending on the payment software you use, there is usually a way to stop the transaction from happening. The stop communicates to the issuing bank to reverse the authorized transaction.

In other instances, you may require the customer to pay a pre-authorized amount before they use or consume a product or service. For example, a hotel may ask for a deposit on a room before accepting a reservation. This pre-authorized payment is also known as a security payment. If the consumer does not spend the authorized amount, you must fully or partially refund them.

Remember that the longer the authorization takes, the more complex the reversal becomes. As the transaction clears through the payment process from the issuing bank to the card network and the acquiring bank, reversal fees become more expensive and complicated. Ideally, you want the funds to stay in the customer’s account when processing reversals so you can avoid interchange fees.

Rapid authorization reversals are cost-effective and fast. Reversals can happen before consumers even know, making this approach the most convenient and customer-centric way to cancel payments. Quick reversals also mean you won’t have to account for the arrival of a payment and return of funds on your balance sheet—something that’s particularly helpful when you process high volumes of transactions for your business.

2. Refund Reversal

Refund reversals are for payments where transactions have already been completed. Refunds often occur because consumers are unsatisfied with a product or service. If the opportunity has passed for an authorization reversal, a refund reversal is your next best option as an organization.

Instead of canceling a transaction, you pay the transaction in reverse. The acquiring bank is now paying the consumer or cardholder in a separate transaction. That means a refund is not a neutral agreement. You will have to pay transaction fees and lose the sale for services rendered or products sold. Still, a refund is preferable over a customer contacting their bank to get their money back.

3. Chargeback Reversal

Chargeback reversals are the worst-case scenario for your business. These reversals involve a customer contacting their bank to file a dispute against the transaction. A consumer may file a dispute if they believe fraud has occurred or if they never received an item or service they paid for.

Chargebacks are more than an inconvenience for your business. These reversals can incur additional chargeback fees and penalties from card networks.

You can dispute chargeback requests if you provide evidence that the consumer is wrong. A dispute can take weeks or months and cause a substantial administrative burden for your team. Even if you win the dispute, your organization may be flagged by card networks if you receive high rates of chargebacks, leading to stricter security thresholds.

When a chargeback reversal occurs, your organization can face a range of challenges:

  • Paying for shipping fees if you’re selling products or goods
  • Recovering or forfeiting items sold or services rendered
  • Submitting a claim and disputing the chargeback reversal

Chargeback reversal can also leave you with revenue loss and transaction fees associated with fraudulent payments. Excessive chargeback reversals may lead to reputational damage and card networks suspending your ability to transact.

The best way to combat chargeback reversals is to identify fraudulent transactions proactively. Internal system checks will help you reduce the number of chargebacks and help you easily distinguish between legitimate and unauthorized transactions.

How to Minimize Payment Reversals

Your organization will face payment reversals from time to time. You can and should take steps to minimize refunds and optimize your processes to mitigate the risks when they do happen. Some ways you can prevent payment reversals include:

  • Making payments secure: Use additional payment security measures like two-step authentication and tokenization to reduce the risk of fraudulent transactions.
  • Being vigilant: Authorization reversals are often due to human error, like a staff member typing in the incorrect amount. Encourage your employees to be attentive while processing payments, explaining the cost and implications of reversals, refunds and disputes.
  • Leveraging automation and technology: Implement an innovative payment processing platform that manages all your payments in one easy, user-friendly interface. CSG Forte verifies transactions, helps you make payments secure, and streamlines recurring and ad hoc payments. The cloud-based platform will support your employees, minimize admin and help you provide first-rate payment experiences for customers.

Frequently Asked Questions

Here are answers to a few common questions to help you gain a deeper understanding of payment reversals.

What Are the Differences Between a Reversal and a Refund?

An essential difference between reversals and refunds is what happens to the funds. During the former, payment reverses, meaning the bank or payment processor cancels the transaction—the funds aren’t transferred from the customer’s account into your account. A refund means that after a transaction is completed, you need to refund the amount and pay it back to the consumer, incurring transaction interchange fees.

What Is an Example of a Reversal Transaction?

In the context of e-commerce, one example of a reversal transaction is a consumer wanting to purchase running shoes online. The consumer attempts to buy running shoes and, during the transaction, receives notice that the shoes are no longer available in the correct size. While the payment is pending, the consumer cancels the transaction. No funds are transferred from the cardholder’s account to yours, meaning no fees are incurred during reversal.

What Happens After a Purchase Refund?

After a purchase refund, the business returns funds to the consumer’s bank account. It is an entirely separate transaction from the original payment. The amount is the same, but the business must pay transactional and processing fees, and standard settlement time applies.

Why Would a Company Reverse a Payment?

A company might reverse payment if:

  • A customer is trying to commit a fraudulent transaction
  • An item or product is sold out before delivery can occur
  • A consumer changes their mind after ordering a product

Verify Payments With CSG Forte

Scale your business and provide frictionless customer payment experiences with CSG Forte’s award-winning payment solutions.

One of the add-on services that organizations leverage to verify payments is Validate. With Validate or Validate+, your organization can process ACH payments with confidence. Both solutions use an innovative ACH database with millions of records, ensuring funds are in good standing. Validate provides:

  • Updated data sources
  • Instant, actionable responses on each transaction
  • Extensive routing and bank account (DDA) validation over multiple data sources
  • 100% real-time reporting for invalid checksums and transaction routing numbers

With Validate, your organization can proactively minimize and simplify payment reversals to save money and provide customers with seamless payment experiences.

Streamline and Verify Your Payments With CSG Forte

CSG Forte has over two decades of experience delivering innovative end-to-end payment solutions for over 81,000 merchants. We will help you optimize revenue and streamline payment processes with quick, easy integrations.

Contact us to learn more.

Tips to Reduce Late Payments by Engaging Payers

Suman Chaudhuri

Suman Chaudhuri, VP, Sales & Revenue, CSG Forte

 

Late payments are on the rise, and they can weigh down your organization’s growth if they go unaddressed.

Auto loan and credit card delinquencies have bounced back to their pre-COVID rates, and late payments on consumer loans aren’t far behind. With these indicators, merchants in other industries might be right to wonder if they’ll see more missed or late payments—assuming they haven’t already.

Organizations are well aware how late payments can disrupt cash flow. As they add up, they can limit the ability to make the investments needed for growth, from purchasing new equipment, to hiring talent, to ordering inventory. Then there’s the cost of collecting late payments: sending out notices, attempting to call customers, engaging collection agencies, and so on.

Consumers often miss payments due to a lack of funds, but a large chunk of late payments are highly preventable. Among consumers who missed a payment in the previous six months, nearly half said either forgetting about the bill or mixing up the due date were factors, according to a recent survey.

So what can organizations do to help customers pay on time? By keeping them engaged with these approaches.

Make the payment experience as easy as possible

Many late payments result from transaction abandonment, which is a usually fixable problem in the customer’s payment journey. Sometimes the abandonment is accidental: think of how easy it is to get distracted in the process of paying a bill online or over the phone if it requires multiple steps. Other transaction abandonment is deliberate: perhaps the customer became frustrated to learn that they can’t make their payment online, and they put off the task for later.

To reduce transaction abandonment—accidental or otherwise—it’s important to make the payment experience as simple as possible.

Accept multiple payment methods.

You want to ensure most of your customers can use the payment method they most prefer, whether that’s credit/debit card, ACH, digital wallets, and yes, paper checks (55% of U.S. consumers wrote checks in 2022).

Offer auto-pay.

Automating regular payments is a win-win for you and your customers. Customers get to put the recurring payment out of mind, and your organization sees fewer late or declined payments. Offering and encouraging auto-pay makes a huge difference. Between April and July 2020, renters failed to make timely rent payments approximately 22% of the time. However, renters who used Rentec’s recurring payment system, powered by CSG Forte, only made late payments 1% of the time.

Allow payments in installments.

Making the payment experience easier can also involve offering a payment plan if your organization can provide that flexibility. Accepting partial or installment payments can be preferable to delinquent payments, and offering installments keeps the customer engaged. The key here is to use a payment solution that enables customers to set up their own alternative payment arrangements easily, without having to call into your call center. The payment terms, installment amounts and due dates also need to be clearly communicated to the customer through the user interface.

Send payment reminders on the customer’s preferred communication channels

The modern consumer has plenty of notifications and due dates competing for their attention. It’s easy for even your most organized customers to forget a payment unless they receive regular reminders. But reminders only matter if customers receive them on communication channels they use. Make sure you can send these automated messages by multiple methods, including email, text and outbound interactive voice response (IVR).

Also consider payment reminders that can integrate with customers’ calendar applications, increasing their visibility as part of your customer’s recurring to-dos. If you can enable seamless payments through your reminder communications, such as offering text to pay, then you’ve not only made it easier for customers to remember their bill, but also pay it in seconds.

CSG Forte Engage, a payer engagement platform, can help simplify your customers’ payment journey in these ways and more, enabling you to minimize late payments and protect your bottom line. Learn more about CSG Forte Engage and start increasing on-time payments today.

4 Best Practices for a Better Payment Experience

Providing a smooth experience is key if you want to make on-time payments easy for your customers. But meeting their expectations can be easier said than done.

The payment experience is often reported as a source of friction for customers. According to a survey of 400 billing and collections executives, 91% of customers cited the inconvenience of bill pay as a pain point. And 34% received customer feedback that there isn’t enough choice in payment methods.

Fortunately, there are simple solutions to facilitate a better payment experience. Follow these four best practices to deliver a secure and convenient digital payment experience that cuts down friction and meets customer expectations.

4 best practices to improve the customer payment experience

1. Seek seamless integration of payment methods

Simply making a multitude of payment options available to your customers won’t create a convenient experience. You need to integrate those channels if you want to encourage prompt payment.

When the payment process is comprised of disparate solutions, it creates friction for customers who are forced to leapfrog from one to another. A customer receiving an email payment reminder doesn’t want to get on the phone with a call center agent just to provide their credit card information. Imagine instead the convenience of being directed to an online payment platform directly within the reminder email.

By integrating your payment methods and eliminating cumbersome payment journeys, you’ll encourage prompt and repeatable payments.

2. Prioritize CX to limit late payments

Providing a positive customer experience doesn’t stop at the point of purchase. The payment portal is a brand touchpoint that deserves equal consideration.

For customers, the hassle of navigating a poorly designed platform can deter on-time payments. According to a 2022 survey of more than 1,500 bill payers, 14% of respondents prioritize convenience. Millennials go even further, with 23% citing payment ease as a reason to pay some bills before others.

A business that offers a user-friendly payment experience may encourage customers to first pay their bills before tackling—or even disregarding—those that involve more convoluted processes.

3. Gain trust with a secure payment platform

Many consumers are concerned about security, for good reason. Credit card fraud is widespread, and card-not-present fraud is expected to account for 74% of all credit card fraud losses by 2024. Up to 52% of U.S. bill payers rank security as a top feature in the digital payment process.

Here’s the takeaway: if customers don’t trust your payment system, they won’t use it.

It’s critical to demonstrate that cardholder data is protected on your payment platform. Follow these strategies to keep your customers secure:

  • Use payment IVR systems to securely take payments
    Asking customers to read out their credit card information to a call center agent increases the risk of fraud. Leverage Interactive Voice Response (IVR) technology to add a level of security.

    • Inbound IVR allows customers to call in and manually enter their credit card information via keypad, reducing the risk that someone will overhear the details and jot them down.
    • Outbound IVR lets customers receive a scheduled payment call at their convenience and then enter their credit card details during the call.
  • Keep call center payments secure
    Use a payment platform that makes it simple for call center agents to quickly create custom invoices and send customers a link to securely complete transactions. Customers can pay directly without sharing their account data with anyone, all while removing the organization’s exposure to sensitive payment data.
  • Choose a payment platform that offers Payment Card Industry (PCI)-compliant processing
    PCI regulations change frequently, making it challenging to keep up with complex security requirements. You can spare your business the risk of inadvertent regulatory discrepancies by using a payment platform with built-in PCI compliance. Trusting your payment platform to securely store sensitive customer data lets you stay focused on growing your business.

4. Make it easy for customers to read your reminders

A quick way to increase the odds of late payment is sending a customer reminders on a communication channel they rarely use. Leverage multi-channel communications for reminders to make sure you’re reaching them where they are most likely to respond.

Relying on email won’t always get your message across. Short Message Service (SMS) is gaining popularity. A Statista survey found that U.S. Internet users opened and read 42% of commercial text messages, as opposed to 32% sent by email.

The CSG Forte Payer Engagement Platform allows customers to pay when and how they want

CSG Forte’s Payer Engagement Platform is a revolutionary payments solution that meets your customers where they are. It enables any-time, any-way payment completion on the channel of their choice. Our low-code solution manages invoice creation, payment processing, and payment notifications—all on one secure platform.

Contact us to learn how the CSG Payer Engagement Platform can simplify your customer’s bill payments, improve their experience, reduce fraud exposure and encourage on-time payments.

Invite customers to receive payment reminders, confirmations and late notices on their preferred channels. Then implement a platform with calendar integrations to easily send personalized links to a custom invoice where you know they’ll see it.