Chargeback Accounting: Simple Steps to Reconcile Chargebacks & Chargeback Reversals
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.
The Major Banks
Your 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).
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.
Independent Sales Organizations
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.
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, representment, 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.
Download your copy of The Smart Way to Fight & Recover Chargebacks to learn how to fight and recover your chargebacks the "smart" way.