As a business owner in the UK, accepting credit card payments from your customers can be a great way to boost sales and improve customer satisfaction. However, there may be situations where you need to refund a customer for a purchase. Understanding the credit card refund rules can be essential in providing a smooth and hassle-free experience for both you and your customers.

There’s plenty of guides out there for consumers, helping them to work out how to get credit card refunds, but small business owners need to have an understanding of how the rules of refunding credit cards apply to them to make sure they comply.

In this guide we’ll cover everything you need to know, including:

  • Can you get a refund on a credit card?
  • How does a refund on a credit card work?
  • How long does a refund on a credit card take?

Here’s your guide to credit card refunds for small businesses.

Can You Get a Refund on a Credit Card

So when it comes to customers claiming money back on a credit card, is it even possible? The simple answer is that yes, a credit card claim back is possible. When consumers receive reimbursement for a purchase made with a credit card, it is known as a credit card refund.

They may receive the refund directly from the retailer, or may need to use Section 75 of the Consumer Credit Act to go through their credit card company. Once the refund is processed, it will typically be deducted from the outstanding balance on the credit card.

That answers the question of ‘can you get refunds on a credit card’ which is the same as whether businesses need to offer refunds for credit card purchases. A credit card refund is a reimbursement of the amount a customer paid for a product or service using their credit card. There are two types of refunds: a merchant refund and a chargeback.

A merchant refund is initiated by the business that sold the product or service. The refund is processed directly to the customer's credit card and usually takes a few days to reflect in their account.

A chargeback, on the other hand, is a process where the customer disputes a transaction with their credit card company. The dispute can arise due to various reasons, such as a fraudulent transaction, a faulty product, or a misunderstanding. When a customer initiates a chargeback, the credit card company holds the disputed amount from the merchant's account until the dispute is resolved.

In contrast to credit card refunds, chargebacks can take much longer to resolve. The process involves several steps, including an investigation by the credit card company, communication with the merchant, and potentially a review by an arbitration panel. The entire process can take several weeks to months, during which the merchant's funds may be frozen, causing significant financial strain.

In the UK, the rules around credit card refunds are governed by the Consumer Credit Act 1974. Section 75 of the act provides protection for customers who have paid for goods or services with a credit card.

Under Section 75, customers are entitled to a refund if:

  • The product or service they received was not as described
  • The product or service was not delivered
  • The company they purchased from went bankrupt or went out of business

But what does this mean for businesses?

First and foremost, it means that you need to ensure that you're providing accurate and detailed information about your products or services. If a customer claims that they were misled or that your product is faulty, they may be able to initiate a claim under Section 75.

In order to avoid this, you should take steps to provide clear descriptions and images of your products, as well as accurate pricing and delivery information. It's also a good idea to have a clear returns policy in place, so that customers know what to expect if they need to return an item.

If a customer does make a claim under Section 75, you will be notified by your merchant services provider. You may be asked to provide additional information or evidence to support your case. It's important to respond to these requests promptly and thoroughly, as failure to do so could result in the claim being upheld in the customer's favour.

It's worth noting that Section 75 only applies to credit card transactions where the purchase price is between £100 and £30,000.

For purchases outside of this range, or for purchases made with a debit card, customers may still be able to initiate a chargeback through their card provider.

By providing clear and accurate information about your products, and responding promptly to any claims made under Section 75, you can help to protect your business and maintain good relationships with your customers.

If the purchase was made using a debit card or through a third-party payment processor such as PayPal, the customer may still be eligible for a refund under the Chargeback scheme. However, the protections under this scheme are not as strong as those offered by Section 75.

While the credit card refund process is generally straightforward, there may be instances where disputes arise, and customers may turn to the Financial Ombudsman Service (FOS) for resolution. The Financial Ombudsman is an independent organisation that resolves disputes between consumers and financial businesses.

This includes issues related to credit card refunds, as well as a range of other financial products and services. If a customer is dissatisfied with how their credit card refund has been handled, they may contact the Financial Ombudsman to seek resolution.

If a customer does escalate a credit card refund dispute to the Financial Ombudsman, they will generally be required to provide evidence to support their claim. This might include details of the purchase, any correspondence with the business or credit card company, and any other relevant information. The Financial Ombudsman will then investigate the claim and make a determination based on the available evidence.

In cases where the Financial Ombudsman determines that a credit card refund is due to the customer, the business will typically be required to issue the refund within a specified timeframe.

This is usually within 28 days, although it may be shorter or longer depending on the specific circumstances of the case. If the business fails to comply with the Financial Ombudsman's decision, they may be subject to fines or other penalties.

It's important to note that while the Financial Ombudsman can provide a valuable avenue for resolving credit card refund disputes, it's generally best to try and resolve the issue with the customer directly first.

This might involve offering a replacement product or service, issuing a partial refund, or providing some other form of compensation to address the customer's concerns. By proactively engaging with customers and seeking to resolve disputes quickly and fairly, businesses can help to avoid escalations to the Financial Ombudsman and maintain positive customer relationships.

How Does a Refund on a Credit Card Work?

So how does a refund on a credit card work in the UK for small businesses? If a customer requests a refund on a purchase made with their credit card, there are a few steps you'll need to take as a business owner. First, you'll need to confirm that the purchase was made with a credit card and that it's eligible for a refund based on your business's refund policy. Once you've confirmed this information, you can issue the refund.

To issue a credit card refund, you'll need to log in to your merchant account or payment gateway and select the transaction you want to refund. You'll then enter the refund amount and the reason for the refund. After submitting the refund, the customer will receive the refund to their credit card account within a few business days.

As a business owner, it's important to have a clear refund policy in place to avoid any confusion or disputes with customers. Your refund policy should outline the circumstances under which refunds are granted and any limitations or restrictions on refunds. It's also a good idea to clearly communicate your refund policy to customers at the time of purchase so they know what to expect.

In some cases, customers may dispute a charge on their credit card statement, resulting in a chargeback. A chargeback occurs when the credit card issuer reverses the charge on the customer's account and debits your business's account for the transaction amount.

Chargebacks can be costly for businesses, so it's important to have a clear refund policy in place and to communicate openly with customers to avoid chargebacks.

How Long Does a Credit Card Refund Take?

For customers, a very important question - especially when it comes to big ticket purchases - is how long does a credit card refund take? When they’ve decided they want their money back, they’ll be sure to want to know how long for the credit card refund to process so they can have the funds available for another purchase.

The time it takes for a credit card refund to process can vary depending on several factors, including:

  • Processing Time for the Refund Request: The time it takes for the refund request to be processed can vary depending on your payment gateway and the customer's bank. Some payment gateways, such as PayPal, offer instant refunds. However, others may take longer.
  • Processing Time for the Bank or Credit Card Company: Once the refund request is received, the bank or credit card company can take some time to process it. In most cases, this takes between 3-5 business days, but it can take up to 10 business days.
  • Bank Holidays and Weekends: Bank holidays and weekends can also impact the time it takes for a credit card refund to process. If the refund request is initiated on a bank holiday or weekend, it may take longer to process.

Many of these are issues outside of your control, but there are some ways you can help the customer get their refund more quickly. Here are a few tips to help speed up the credit card refund process:

  • Use a Reliable Payment Gateway: Choosing a reliable payment gateway that offers instant refunds can help speed up the process. PayPal, for example, offers instant refunds, making it an excellent choice for businesses that need to process refunds quickly.
  • Communicate with Your Customers: Communicating with your customers and keeping them updated on the refund process can help manage their expectations. Let them know how long the process usually takes and keep them updated if there are any delays.
  • Process Refunds Promptly: Initiating the refund request promptly can also help speed up the process. Make sure you have a clear refund policy and that you process refunds as soon as possible.