Credit Card Chargeback
A credit card chargeback takes place when a credit card holder disputes a charge with the credit card company (e.g. VISA) and the credit card company issues a chargeback to the customer for the disputed amount and notifies the vendor that they have issued a chargeback to the customer.
A cardholder can request a charge back for many reasons including, but not limited to:
Charges for undelivered goods
Charges for goods or services different from what was ordered or if they received the wrong quantity of the goods or services ordered.
Charges for goods that were not timely delivered
In release 11i, we already have the functionality for the vendor to issue a chargeback directly to the customer. The customer can however also request a chargeback from the credit card issuer, so in release 12 - we are introducing the functionality for the vendor to also be able to register and process a chargeback that a card issuer has already issued to the customer.
Benefits:
Reduce costs by automating the credit card chargeback process
Credit Card Chargeback Process
Charges for goods or services different from what was ordered or if they received the wrong quantity of the goods or services ordered.
Charges for goods that were not timely delivered
In release 11i, we already have the functionality for the vendor to issue a chargeback directly to the customer. The customer can however also request a chargeback from the credit card issuer, so in release 12 - we are introducing the functionality for the vendor to also be able to register and process a chargeback that a card issuer has already issued to the customer.
Benefits:
Reduce costs by automating the credit card chargeback process
Credit Card Chargeback Process
After having received the credit card chargeback notification from the card issuers, the vendor will:
Find the receipt for which the chargeback was requested.
Un-apply the application line and subtract the amount of the credit card chargeback.
Apply the credit card chargeback activity on a new application line on the receipt. This automatically generates a negative miscellaneous receipt to the value of the chargeback.
If the vendor finds the chargeback to be valid, the vendor creates a credit memo to credit the invoice with the amount charged back.
If the vendor can prove to the credit card company that the chargeback was not valid, the vendor reverses the application of the credit card chargeback by:
Un-apply the application line and subtract the amount of the credit card chargeback.
Apply the credit card chargeback activity on a new application line on the receipt. This automatically generates a negative miscellaneous receipt to the value of the chargeback.
If the vendor finds the chargeback to be valid, the vendor creates a credit memo to credit the invoice with the amount charged back.
If the vendor can prove to the credit card company that the chargeback was not valid, the vendor reverses the application of the credit card chargeback by:
Finding the receipt
Un-applying the credit card chargeback activity from the receipt. This automatically reverses the negative miscellaneous receipt
Restoring the original amount on the application line.
It is important to understand how our new Credit Card Chargeback functionality differs from the Credit Card Refunds we already have in 11i:
Un-applying the credit card chargeback activity from the receipt. This automatically reverses the negative miscellaneous receipt
Restoring the original amount on the application line.
It is important to understand how our new Credit Card Chargeback functionality differs from the Credit Card Refunds we already have in 11i:
Credit card refunds: The merchant needs to refund the customer. So the negative misc. receipt must be remitted.
Credit card chargebacks: The customer has already received the chargeback, so the vendor will just need to record that a chargeback has taken place. The purpose of the misc. receipt is just to keep the accounting in place.
Business Process Steps
Credit card chargebacks: The customer has already received the chargeback, so the vendor will just need to record that a chargeback has taken place. The purpose of the misc. receipt is just to keep the accounting in place.
Business Process Steps
The business process that takes place when a credit card chargeback needs to be recorded is a three step process:
1.The vendor receives the receipt, records it and applies it to the invoice.
2.The vendor receives the Credit Card Chargeback notification and records the credit card chargeback by applying the credit card chargeback to the receipt
3.The vendor then needs to investigate if the Credit Card Chargeback is valid or not.
2.The vendor receives the Credit Card Chargeback notification and records the credit card chargeback by applying the credit card chargeback to the receipt
3.The vendor then needs to investigate if the Credit Card Chargeback is valid or not.
Based on the outcome, the vendor can choose to either:
-Acknowledge the credit card chargeback and credit the invoice, or
-Prove that the credit card chargeback was not valid, and after acknowledgement un-apply the credit card chargeback from the receipt
Credit Card Chargeback Process Receive Receipt
-Prove that the credit card chargeback was not valid, and after acknowledgement un-apply the credit card chargeback from the receipt
Credit Card Chargeback Process Receive Receipt
Example:
A customer visits a web store and orders goods for $100 using their credit card
The credit card company authorizes the payment and notifies the vendor of the receipt of $100
The vendor processes the receipt and applies it to the invoice.
Please note that there are no changes in how these activities are carried out in R12.
Let’s now take a look at the credit card chargeback process.
The customer receives the goods, but finds that goods for $25 are missing.
The customer files a dispute with the credit card company for $25
The credit card company credits the customer $25 and notifies the vendor that a chargeback of $25 has taken place.
The vendor applies the credit card chargeback to the receipt which generates a miscellaneous receipt to decrease cash with $25
Here we can see how the clearing account for the receivable activity of type ‘Credit Card Chargeback’ is used. It gets credited when the credit card charge back is applied and gets debited when the misc. receipt is generated.
Accounting Entries
Un-apply the receipt
–DR Receivables $25
–CR Unapplied $25
The customer files a dispute with the credit card company for $25
The credit card company credits the customer $25 and notifies the vendor that a chargeback of $25 has taken place.
The vendor applies the credit card chargeback to the receipt which generates a miscellaneous receipt to decrease cash with $25
Here we can see how the clearing account for the receivable activity of type ‘Credit Card Chargeback’ is used. It gets credited when the credit card charge back is applied and gets debited when the misc. receipt is generated.
Accounting Entries
Un-apply the receipt
–DR Receivables $25
–CR Unapplied $25
Apply the credit card chargeback
–DR Unapplied $25
–CR Credit Card Chargeback $25
–DR Unapplied $25
–CR Credit Card Chargeback $25
Misc. receipt is generated
–DR Credit Card Chargeback $25
–CR Cash $25
Chargeback Process for Vendor:
1.Find receipt
2.Un-apply the receipt
3.Decrease the value on the receipt application line to $75
4.Apply $25 to receipt activity ‘Credit Card Chargeback’ (creates a negative misc. receipt of $25)
Validate Credit Card Chargeback
–DR Credit Card Chargeback $25
–CR Cash $25
Chargeback Process for Vendor:
1.Find receipt
2.Un-apply the receipt
3.Decrease the value on the receipt application line to $75
4.Apply $25 to receipt activity ‘Credit Card Chargeback’ (creates a negative misc. receipt of $25)
Validate Credit Card Chargeback
After the vendor has analyzed the credit card chargeback, the vendor can find the credit chargeback to be either valid or invalid.
The vendor can now either:
Acknowledge the credit card charge back and credit the invoice.
Prove to the credit card company that the credit card chargeback was invalid and un-apply the credit card chargeback from the receipt once it has been acknowledged by the credit card company that the credit card chargeback was invalid.
If the vendor acknowledges the credit card chargeback, the vendor simply credits the invoice by creating a credit memo for $25.
Credit the invoice by creating a credit memo
–DR Revenue $25
–CR Receivables $25
Vendor proves the chargeback to be invalid:
Un-apply the credit card chargeback
–DR Credit Card Chargeback $25
–CR Unapplied $25
Prove to the credit card company that the credit card chargeback was invalid and un-apply the credit card chargeback from the receipt once it has been acknowledged by the credit card company that the credit card chargeback was invalid.
If the vendor acknowledges the credit card chargeback, the vendor simply credits the invoice by creating a credit memo for $25.
Credit the invoice by creating a credit memo
–DR Revenue $25
–CR Receivables $25
Vendor proves the chargeback to be invalid:
Un-apply the credit card chargeback
–DR Credit Card Chargeback $25
–CR Unapplied $25
Misc. receipt is automatically reversed
–DR Cash $25
–CR Credit Card Chargeback $25
–DR Cash $25
–CR Credit Card Chargeback $25
Reapply the receipt
–DR Unapplied $25
–CR Receivables $25
Credit Card Chargeback Setup
–DR Unapplied $25
–CR Receivables $25
Credit Card Chargeback Setup
Responsibility: Receivables
Navigation: Receipts > Receipts > (B) Apply > Applications > (B) Chargeback
Release 12 comes with the seeded Receivables Activity Type of ‘Credit Card Chargeback’.
Navigation: Receipts > Receipts > (B) Apply > Applications > (B) Chargeback
Release 12 comes with the seeded Receivables Activity Type of ‘Credit Card Chargeback’.
The only setup step required is to create a new receivables activity of type credit card chargeback and specify the GL clearing account for the new activity.
Note: Only one activity of this type can be active.
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