If your card payment is declined or disputed, it may lead to several consequences, such as a temporary hold on your account, a refund being issued, or further investigation by the card issuer.
In today's fast-paced world, managing finances effectively is crucial. One area that requires particular attention is ensuring that credit card payments are made on time and with sufficient funds. Returned payments can lead to a series of financial, operational, and reputational consequences, as outlined below.
**Financial Fees**
When a payment is returned due to insufficient funds or other reasons, both merchants and banks may charge fees. These fees, known as returned payment fees, add to the overall debt burden and are in addition to the original payment amount. The amount of the returned payment fee often varies between $25 and $40, but it should not be higher than your minimum payment due.
In some cases, a returned payment may escalate into a chargeback, for which the merchant can be charged a non-refundable fee, usually ranging between $20 and $100 per chargeback. Unpaid amounts may also accrue interest over time, increasing the total amount owed.
**Revenue and Cash Flow Impact**
Returned payments and chargebacks result in immediate loss of revenue as the transaction funds are reversed back to the cardholder. This loss of revenue impacts cash flow, potentially impairing the merchant’s ability to manage inventory, pay bills, or hire staff. If physical goods or services were delivered before the chargeback, the merchant typically does not recover the product or the payment, resulting in a loss.
**Operational Consequences**
Managing returned payments and disputing chargebacks consume significant time and operational resources. Excessive chargebacks can put the merchant’s account at risk, often leading to higher processing fees or needing a high-risk merchant account, or even merchant account termination.
**Credit and Reputation Impact**
For individuals or businesses making payments, repeated returned payments can harm credit scores, affecting future credit access. Frequent payment reversals can damage merchant reputation and customer trust, contributing to customer churn.
Preventing returned payments is key to avoiding these financial and operational consequences. Setting up balance alerts with your bank and maintaining a $100-$200 buffer in your checking account can help prevent returned payments and associated fees. It's also important to track and budget your spending and keep enough funds in your bank account for payments.
In some cases, a returned payment may occur if you recently switched banks and forgot to update your bank account information or entered it incorrectly. In such situations, promptly updating your bank details can help prevent future issues.
For those who have no recent returned payment offense on their record, the fee is likely to be lower. In the event of a one-time lapse, it's advisable to talk to your issuer's customer representative and ask for grace.
Several large banks have recently decided to eliminate non-sufficient funds fees on checking accounts, resulting in annual consumer savings of about $2 billion. These banks include Alliant Credit Union, Ally Bank, Bank of America, BECU, BMO Harris, Capital One, Chime, Citibank, Citizens Bank, Discover Bank, Fifth Third Bank, Huntington Bank, KeyBank, PNC Bank, Regions Bank, Santander Bank, Truist Bank, U.S. Bank, Wells Fargo, among others.
In summary, proactive prevention and management practices are crucial to mitigate the financial and operational consequences of returned credit card payments. By staying vigilant and managing your finances effectively, you can avoid the potential pitfalls associated with returned payments.
Maintaining sufficient funds in your checking account can prevent the incurrence of returned payment fees, which can range from $25 to $40 and are additional to the original payment amount. Additionally, avoiding returned payments helps protect credit scores and maintain a positive reputation, especially for businesses, as frequent payment reversals can harm credit access and contribute to customer churn.
