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  3. How do I handle ACH or Direct Debit payments that are reversed?
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How do I handle ACH or Direct Debit payments that are reversed?

Modified 17:01, 13 Jan 2012 by Neal Kaplan | Page History
  1. 1. Overview
  2. 2. Solution
    1. 2.1. Create an External Refund
    2. 2.2. Considerations When Managing the Reversal Process
  3. 3. Related

Overview

Direct debit is a way of collecting payment from a customer by pulling the funds directly from their bank account. Direct debit is referred to by different names in different countries, for example, in the United States it may be referred to as ACH and in the United Kingdom it is called direct debit. One of the most powerful benefits of direct debit payments is that it there is a fixed transaction fee, which can be substantially less than the fees for credit card processing.  Comparatively, credit card fees are typically based on a percentage of the sale amount.  So, if you have a $1000 payment, a merchant could pay $30 in credit card fees (using 3% as an example) or .50 in direct debit fees (using .50 as an example).

Another key difference between credit card and direct debit processing is the nature of the approval process. A credit card transaction is immediately approved for payment, which means that the account is good and there is an available balance. With direct debit transactions there is no immediate approval for a payment.  Instead, the direct debit network will respond with an initial approval or decline after checking the format of the bank account number and transit routing number as well as other specific direct debit information. That initial approval from the direct debit network creates a payment tranasction with Processed status in Zuora. A processed payment in Zuora will decrease the invoice balance, just as it would for a credit card approval. Similar to the way a check is handled, you can accept and process the check and in 5-7 days, you will be advised if the payment was rejected or reversed (did not settle) or was accepted (settled) by the bank. Reversals may occur due to different reasons such as insufficient funds or a closed account.

When a direct debit payment is reversed, it is important to take the appropriate actions within Zuora to reflect the reversal. The steps and considerations for managing reversals in Zuora are outlined below.

Solution

One might be inclined to believe that a direct debit transaction is not truly processed until you are positive that the payment was successful and has settled. However, this is not correct. For example, if you go to your ATM and deposit a check, your account balance will immediately reflect that transaction. If the check bounces a few days later, the payment does not settle and there there is a reversal, your account balance will reflect the reversal and will be decreased.

Create an External Refund

When a reversal happens, the first thing you need to do is to reflect the reversal on the invoice balance. Because the payment has been applied to the invoice, we need to "credit" the payment. In Zuora, a refund is a credit to the payment. This allows you to model reversals, refunds, and other types of credits. You can create an external refund which "credits" the payment and updates the invoice balance accordingly (in other words, the invoice balance is open).

Considerations When Managing the Reversal Process

Managing reversals from an Accounts Receivable perspective is fairly easy, but we recommend that you think about your business process associated with this reversal, such as:

  • Process another payment, perhaps using a different payment method.
  • Create an invoice or invoice item adjustment (if you do not anticipate th customer will pay their invoice) and you want to write off the invoice balance.
  • Contact the customer.
  • Deprovision or remove the customer's access to our service(s).

Zuora recommends that you use a custom field called Reason Code on all refunds to track the type of refund. Custom fields help drive reporting, because the reversal is reflected in a separate object. You can report on the time it takes to get the reversal as well as how often a customer reversals occur within your customer base.

Related

Topics
Payment Method
Zuora offers three payment method options: Z-Payment Method, External Payment Method, or None. See Payment Methods for more information.
Configure Payment Method Retry Rules
Zuora allows you to retry payments on a scheduled basis by using scheduled payment runs which will process any invoices that have not been fully paid for customers who have auto-pay enabled. You can also specify the maximum number of consecutive times a failed payment method (for example, credit card) is retried for payment, as well as the ability to define a time period to not retry a payment. For instance if you define the interval as 8 hours, an automated payment retry will not attempt a payment if the last failed payment was less than 8 hours ago.
Payment Methods
The payment method refers to the form of payment customers are using. For online purchases, they usually take the form of electronic payments like credit cards, debit cards, bank transfers, third-party processors (such as Paypal), or non-electronic payments like checks and cash.  The customer's method of payment can be created and edited in the customer account. To learn more, and to configure payment methods, see Define Payment Methods.
Supported Payment Methods
This topic describes the payment methods supported by the payment gateways. Empty fields in the tables indicate that the payment method is not supported by that payment gateway.
Direct Debit for GlobalCollect
Direct debit is a way of collecting funds for a payment directly from a customer’s bank account. It is a very common method of payment in many countries and is frequently used for payment of utilities (such as telephone bills) or mortgage which occur on a recurring basis.
Implementing Direct Debit with GlobalCollect
Although direct debit is treated like any other electronic payment method in Zuora, there are additional steps that you need to perform to implement this payment method. These topics provide an overview of implementing and managing direct debit transactions using the Zuora-GlobalCollect integration. During your integration please contact your GlobalCollect integration manager or Zuora Global Support for assistance.Your GlobalCollect integration manager will provide you documentation and guides to implement direct debit for the specific countries you want to support. For example, direct debit in the United Kingdon has different rules and regulations than direct debit in Germany.
Direct Debit Mandates
Unlike credit cards, you (the merchant) must obtain authorization from your customers to debit their bank account for payment. This authorization can be a confirmation page on the your web store in which authorization is confirmed by your customer when they accept your stated terms and conditions. Alternatively, the authorization can be provided using a signed agreement called a mandate.
Obtaining and Processing Mandates
Mandates are obtained and maintained by you (the merchant) and not by Zuora or your payment services provider, GlobalCollect. The mandate information along with your customer’s bank account information is submitted to GlobalCollect with each payment transaction request.
Retaining Mandates
You, the merchant, are required to keep a mandate up to date for as long as you continue to debit your customer’s account.
Customer Notifications for Direct Debit
Some countries require you, the merchant, to provide the customer with advance notice before debiting the customer's account for payment, while other countries may not require it but consider it a best practice. Advance notice is especially important when the recurring fees have changed, for example, the customer purchased an additional product this month.
GlobalCollect Integration
GlobalCollect is a premier payment services provider with vast experience in international payment processing and an extensive worldwide banking network. Zuora partners with GlobalCollect to deliver a payment gateway integration ("the integration") that supports both credit card payment processing as well as direct debit payment processing. Direct debit is a highly popular payment method in many countries and allows merchants to withdraw money directly from a customer’s bank account. The integration helps merchants acquire international customers more easily by allowing merchants to accept local payment methods (such as local bank transfers).
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