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LeanneM1
November 5, 2024
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Chargebacks from merchant services provider

  • November 5, 2024
  • 1 reply
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We recently experienced a case of fraud when a customer made telephone payments via debit cards.  This resulted in a chargeback fee from our merchant services provider and we are subsequently 'taking the hit'.  How do I record the chargeback in QB online?  Do I process refund receipts for the transactions so that I can recover the VAT content of the initial sales?  The monthly statement from the merchant provider shows a separate chargeback for the total value which will be debited from our bank account.  I'm not sure how to cross reference the chargebacks with the lost sales.  Can anyone help?

Best answer by Maybelle_S

Thanks for your follow-up question, Leanne. You’re right to consider how to avoid duplicating bank debits.

 

When creating Refund Receipts, it will not affect your bank account unless you specify it as the payment method. The purpose of using a Refund Receipt is to reverse the original sale in QuickBooks, and if you allocate the payment to a bank account, it will appear as a separate transaction in your bank feed. This could lead to the chargeback being recorded twice, once via the merchant chargeback and once via the refund receipt.

 

To avoid this, your idea of using Undeposited Funds as the refund account is correct. Undeposited Funds acts as a temporary holding account, so when you record the refund, it will not immediately affect your bank balance.

 

When the chargeback is processed by the merchant provider and debited from your bank account, you can then match it in your bank feed to the Refund Receipt and avoid the double entry.

 

It ensures correct recording of the refund without duplicating the bank transaction, as the chargeback will only be deducted from the bank, not from both the bank and the Refund Receipt.

 

I hope that clears things up! If you have any further questions, feel free to ask.

1 reply

M
Maybelle_S
November 5, 2024

Hello there, Leanne.

 

In QuickBooks Online (QBO), recording chargebacks from a merchant services provider requires a few steps to ensure the financial impact is correctly reflected in your accounts, including VAT recovery.

 

The first thing to do is record the chargeback fee that your merchant services provider charges. This is usually treated as an expense.

 

Here's how:

 

  1. Go to the + New button and select Expense.
  2. Select the Bank Account where the chargeback fee is being deducted.
  3. In the Payee field, choose or create the merchant services provider.
  4. In the Category field, create an expense account such as Chargeback Fees.
  5. Enter the chargeback fee amount.
  6. Ensure you apply the correct VAT code if VAT applies to the fee.
  7. Hit Save and close.

 

Once done, record the chargeback as a reduction in sales, even though it's not a refund from you. I can guide you on how:

 

  1. Go to the + New button and select Credit Note (or Refund Receipt if you prefer).
  2. Select the Customer who made the payment that was charged back.
  3. In the Credit Note details, reverse the original sale (the same amount as the chargeback, including VAT if applicable).
  4. Make sure to adjust the VAT appropriately, using the same VAT rate.

 

Then, match the Chargeback Fee with the Bank Transaction. When the merchant services provider debits the chargeback amount and fee from your bank account, reconcile this in QuickBooks.

 

If you want to track the lost sales due to chargebacks for reporting purposes, you can create a custom account under Sales (e.g., "Lost Sales from Chargebacks") or use a memo field in the sales transaction.

 

However, QBO does not automatically link chargebacks to individual sales. You'll have to manually track the correlation between the refunded amount and the lost sales for reporting.

 

Additionally, the VAT recovery process depends on specific rules for VAT and refunds in your jurisdiction. Generally, when a sale is refunded (even via chargeback), you should adjust VAT on your VAT return to reflect the reduced sale amount. In the case of a chargeback, you should reverse the VAT on the transaction through the Credit Note as described above.

 

This method should ensure the chargeback is properly recorded, including VAT adjustments and your accounting stays accurate. I also suggest seeking guidance from your accountant or bookkeeper to ensure you're handling it correctly for your specific tax situation.

 

Tag my name in the comment below if you need more help handling chargebacks in QuickBooks. I want to ensure everything is taken care of.

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LeanneM1Author
November 5, 2024

Thank you @Maybelle_S that's greatly appreciated.  Just a follow up on the sale reversal side of things.  The sales were initially processed as 'sales receipts'.  If processing 'refund receipts' I need to allocate the bank account.  If/when doing this, would this not then duplicate the debits from said bank account;  i.e the refunds and the merchant chargeback?  I was thinking perhaps I could use 'undeposited funds' as the refund account.  Would that work or am I misundestanding your earlier instruction somewhere?

M
Maybelle_SAnswer
November 5, 2024

Thanks for your follow-up question, Leanne. You’re right to consider how to avoid duplicating bank debits.

 

When creating Refund Receipts, it will not affect your bank account unless you specify it as the payment method. The purpose of using a Refund Receipt is to reverse the original sale in QuickBooks, and if you allocate the payment to a bank account, it will appear as a separate transaction in your bank feed. This could lead to the chargeback being recorded twice, once via the merchant chargeback and once via the refund receipt.

 

To avoid this, your idea of using Undeposited Funds as the refund account is correct. Undeposited Funds acts as a temporary holding account, so when you record the refund, it will not immediately affect your bank balance.

 

When the chargeback is processed by the merchant provider and debited from your bank account, you can then match it in your bank feed to the Refund Receipt and avoid the double entry.

 

It ensures correct recording of the refund without duplicating the bank transaction, as the chargeback will only be deducted from the bank, not from both the bank and the Refund Receipt.

 

I hope that clears things up! If you have any further questions, feel free to ask.

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