Void Transactions

What Are Void Transactions?

A void transaction is a debit or credit card transaction that is canceled by the vendor before it is settled by the cardholder’s bank.

Void transactions happen for several reasons but are primarily seen in retail and service environments where the payment process occurs immediately.

Common causes of void transaction scenarios:

• Entry error from employee
• Duplicated transactions from human or technical error
• Customers changing their mind
• Point of sale (POS) glitches or errors
• Fraudulent transactions
• Preauthorization holds
• Unavailable stock from incorrect inventory management
• Regulation Provisions
• Incorrect advertised price

Void Transactions vs. Refunds

Void transactions are simpler than refunds for both the merchant and the consumer because they prevent the transaction from being completed in the first place, thus eliminating more steps.

On the other hand, if the customer issues refunds, extra steps have to be taken. The purchase has to be verified, and the merchant would have to issue a refund by sending cash funds back to the customer.

The bought items now have to be transferred from the customer to the merchant. The merchants supervise inventory management and lead the processes for a used item from this point on.

Bank statements could take up to either 24 hours or a couple of business days before either void transactions or refunds can be fully facilitated.

What is a Reverse Transaction?

A reverse transaction is similar to a refund, with the key difference being that the money is credited by the credit or debit card company rather than directly by the merchant.  These exchanges can rely on merchant processing or by the card issuer. 

To clarify:

1. A customer would request a refund that reverses a transaction the customer already concluded. 
2. The merchant refuses to refund for quality reasons.
3. The customer initiates a dispute with the card company. 
4. After the company investigates and if the correct conditions are met, then the card issuer will issue the refund instead. 

How Void Transactions Work

Immediately after a credit or debit card transaction transpires, the merchant’s POS system relays the data to the credit or debit card companies.

After the card companies determine that the card is authenticated and the corresponding account has enough cash or sufficient credit to cover the charge, the POS terminal approves the transaction. All of this only takes a couple of seconds.

The last step is the settlement stage, in which the payment is released from the customer’s account and transmitted to the seller’s bank. Voiding the transaction can be done up to this point, and the money will not move.

Once voided, the transaction will show up on the customer’s bank account as a pending transaction and then disappear sometime later.

Pending transactions place a hold on the funds, making them unavailable during this period. Depending on the bank, the pending phase can last from 24 hours to several business days.

Void Transaction Impact

The void transactions have impacts on both merchants and consumers. Both impacts on merchants and consumers have some intersection since they are both the opposite sides of the table but share the same transactional activity.

• Impacts on merchants
  • Voiding sales transactions keeps financial records accurate and avoids the need for adjustments later.
  • Ensures inventory remains is logistically correct.
  • Customers are more satisfied since voiding prevents disputes and maintains trust.
  • Minimal or zero processing fees.
• Impact on consumers
  • Prevents unnecessary charges from appearing on their checking account so the funds remain available.
  • More convenient than refunds since refunds take several days for the reversal to occur.
  • Increased trust with the merchant.
  • Credit is readily available and not temporarily reduced.

Of course, not all void transactions have positive implications. There are pros and cons to void transactions and what they do.

Tips for avoiding unnecessary holds on funds

• Employees must familiarize themselves with the POS systems and its features.
• Communication between merchants and customers has to be clear. The customer has to understand what he/she is going into before paying and signing anything to prevent void transactions from happening in the first place.
• Procedure for staff on how to complete void transactions.
• Employees have to maintain proper records for auditing dispute resolutions and financial reconciliation.
• Internal controls to prevent misuse of void function. It could be a dollar limit amount unless approval from a manager.
• Better technology will always increase accuracy and lower administrative burdens.
• Review process improvements and identify patterns to flag any potential issues with a sales product.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Arm’s Length Transaction
• Transaction Risk
• Types of Due Diligence
• Types of Mergers
• Unilateral Contract