Chargeback Recovery

How to Reconcile Chargebacks and Chargeback Reversals

Chargeback Accounting-Simple Steps to Reconcile Chargebacks & Chargeback Reversals

Table of Contents

  1. What is Chargeback Accounting?
  2. How Can You Understand The Major Banks? 
  3. What are the Independent Sales Organizations?
  4. Should I Have Reserve Funds?
  5. Keep a Close Eye on Your Statements
  6. Conclusion
  7. Frequently Asked Questions

Dealing with chargebacks and the process of fighting them can be a real headache, so it can be a relief to get to the end of a month and know that once you've reconciled the debits and credits associated with a chargeback to your bank statement, you'll never have to see it again.

However, chargeback accounting can be tricky at times, depending on what type of merchant account you have. Different banks and payment processors have different ways of handling chargeback debits and credits.

In order to keep your books clean and accurately record how your finances have been affected by chargebacks, you need to know how the entities you're dealing with present them to you on your monthly statements.

What is Chargeback Accounting?

Normal accounting of transactions is exactly what you expect. But, when you start factoring in chargebacks, you'll start running into problems with cash flow and revenue if you don't balance your books right. 

Some of the challenges that come with chargeback accounting include:

  1. Time. Chargeback disputes take time. The cardholder may not enact a dispute right away, and when they do the process for moving forward, from issuing bank to acquiring bank, can vary. Then, once you receive word of the chargeback, you may want to put forward a dispute of your own. All of this takes time in terms of weeks or months.

  2. Overlapping expenses. When a chargeback occurs, you'll have to track multiple expenses. That includes items like chargeback fees, replacing merchandise, factoring in marketing and sales costs, etc. These can be difficult to track.

  3. Multiple transactions. On top of multiple expenses, you'll be managing multiple transactions through your bank. Instead of one incoming transaction, you could have 2 or more outgoing transactions for fees. These aren't easy to follow unless you are focusing on them.

These items not only demonstrate how difficult tracking chargebacks can be, but also the importance of chargeback accounting. 


How Can You Understand The Major Banks? 

New call-to-actionYour guidelines for chargeback accounting may hinge on whether you obtained your merchant account from an agent, an aggregator, or directly from a bank.

The major banks like Wells Fargo, Chase, and Capital One offer merchant accounts directly.

When they send you your account statement at the end of the month, you'll find each of your chargebacks listed as an individual line item, with the transaction amount and the chargeback fee split out as separate amounts. The same goes for chargeback reversals.

These banks make it easy to identify fees and transaction amounts for reconciliation purposes (like the samples below).

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Each amount will be categorized separately on your statement. However, the statement is the only notification you will receive of chargeback-related withdrawals or deposits to your account.

What are the Independent Sales Organizations?

ISOs (also known as Merchant Service Providers) are third-party merchant account providers that often service smaller or higher-risk merchants.

The statements you get from them will have line items showing your chargebacks, but some ISOs lump the fees and transaction amounts together in a single line.

This can make it challenging to trace a chargeback line item back to the original transaction that spawned it. Remember that you always have the right to contact them to ask for an explanation of any chargeback line items, along with a breakdown of the fees it includes.

Should I Have Reserve Funds?

Some banks don't include chargeback or reversal fees in the amounts listed on your statement. In these cases, you will see only the disputed amount.

The reason for this is that they are holding fees related to chargebacks, Download the eGuide, 4 Reasons to Hire a Chargeback Management Companyrepresentment, and reversals in a reserve fund. They may hold them there for up to six months before releasing them to you. This can make things confusing when you are trying to ascertain the total financial impact of a chargeback. You may also find yourself receiving credits to your account that you can't easily or immediately identify, because they are related to months-old chargeback reversals. 

When you're confused, it's best to reach out to your bank for an explanation before accounting discrepancies carry over from month to month and spiral out of control. You always have the right to know how fees are calculated and how each charge on your statement breaks down.

Keep A Close Eye on Your Statements

Keeping your accountants and bookkeepers happy isn't the only reason to pore over your bank statements. It's important to compare statements to your own chargeback records to make sure you're being charged—or credited—correctly. 

It's tempting to trust our banks to be so automated and precise that we don't have to worry about inaccuracies, but mistakes can and do happen.

Any given chargeback can be a confusing, multi-step process, with many opportunities for human error.

Fees can be calculated incorrectly, reversals can be missed.

When participating in chargeback representment, keep your own notes about how much you expect to get back. Track your charges and compare statements to your notes to ensure you're getting the right amounts credited back to you.

If a charge doesn't look right, don't just assume the bank knows better than you. Call them up and ask them to walk you through it until you understand and agree with how they arrived at the number they did. Even when you have a trusted bank that's looking out for you, you have to be your own best advocate, especially where the confusing world of chargebacks is concerned.


Fighting chargebacks? In order to fight chargebacks and your recover lost revenue, you must first understand how chargebacks are filed and how the dispute process works.  


How Can You Record a Chargeback?

When recording a chargeback as an expense, you have to ensure that your expenses reflect not only the lost revenue for the chargeback but also for fees and lost operating expenses.



Is a Chargeback an Operating Expense?

Technically yes, and many businesses treat them as such. Other businesses are turning to chargeback management providers to help them reduce these operating expenses. They don’t have to continue to be for your business.



Is a Chargeback a Refund?

A chargeback is not a refund, so when you are performing accounting, you must manage both chargebacks and refunds as completely different things to remain accurate.




Download your copy of The Smart Way to Fight & Recover Chargebacks to learn how to fight and recover your chargebacks the "smart" way.

Fight & Recover Chargebacks - Get The Guide