What to do When a Payment fails (after processing)

Every now and then a payment is rejected by the gateway after we have initially processed it.  In these cases we will already have marked this invoice as paid in your accounting system.

For selected gateways we have an automated way of handling post-processing failures - please read Managing Failed Transactions for the automated approach for these gateways only:

  • EziDebit Scheduled Credit Cards (NZ & AU)
  • EziDebit Direct Debits (NZ & AU - except EziDebit 3-3 interface)
  • Forte ACH (US)
  • Forte PAD (CA)
  • Stripe ACH (US)
  • SagePay (ZA)

If your gateway is not listed above, then this is the page for you.

Please note that this page only applies if the payment is initially approved or accepted by the gateway, but is declined or returned AFTER this.  If a transaction fails during our process we DO NOT record the payment and notify you by email immediately.  Most credit card gateways will process in real time so you know immediately that the transaction has been processed (the exception is EziDebit Scheduled Credit Card gateway).

Determine the cause of the failure

This is very important, as it will determine your next steps.  The most common reasons for failure after initial processing are:

  • Chargebacks (where the account holder instructs their bank to decline the transaction)
  • Insufficient Funds or over limit (Credit Card/Direct Debit/ACH)
  • Invalid Account (Direct Debit/ACH)

Chargebacks

Chargebacks are caused by many factors but most come back to a failure to adequately communicate with your customer.  If you customer is surprised by a charge to their account (they should NEVER be surprised) or disputes that they ever gave authority to do so (again, this should NEVER happen) then you need to take responsibility to resolve the situation.  Here are the steps that you should follow:

  1. In uCollect you should suspend the CONTACT to prevent any further charges from being processed until the issue is resolved.
  2. In your accounting system you should remove the original payment transaction (if you have reconciled this to a batch deposit then see more below).
  3. If the funds were initially settled you will need to edit the settlement transaction and code the disputed payment to a suspense account, and code the chargeback to the same suspense account to offset.
  4. Next you should resolve the issue with the customer.  Determine if the invoice was valid and the authority to charge their account is valid.  Correct any details that are wrong.
  5. If the pre-authorized authority is still held you should un-suspend the contact in uCollect – the invoice will be collected in the next processing cycle.  If not, DELETE the contact details in uCollect (this won’t remove the contact or invoices from your accounting system).
  6. Notify the customer of the outcome and next steps.  If you charge a fee for erroneous chargebacks (you will have incurred costs and time to manage this) then invoice your customer (uCollect will collect as usual if the contact is active).

Invalid Account

  1. In uCollect you should suspend the CONTACT to prevent any further charges from being processed until the issue is resolved.
  2. In your accounting system you should remove the original payment transaction.
  3. If the funds were initially settled you will need to edit the settlement transaction and code the disputed payment to a suspense account, and code the chargeback to the same suspense account to offset.
  4. Next you should obtain the correct bank account from the customer.  You can do this with a PayNow or Invite request (if available) or by obtaining the details over the phone and entering these in uCollect using the Edit Contact link.
  5. Notify the customer of the outcome and next steps.   If there are overdue invoices advise the client that these will be collected immediately, or put an installment plan in place in uCollect.
  6. Unsuspend the contact in uCollect to allow normal collection to resume.

Insufficient Funds

  1. Contact your customer to determine how you will recover your funds.  Agree on a plan.
  2. In your accounting system you should remove the original payment transaction.
  3. If the funds were initially settled you will need to edit the settlement transaction and code the disputed payment to a suspense account, and code the chargeback to the same suspense account to offset.
  4. If you have agreed on a payment plan then enter this into uCollect right away.  If you don’t the invoice will be attempted again in the next cycle.
  5. If you charge a fee for returned payments (you may have incurred costs and time to manage this) then invoice your customer (uCollect will collect as usual if the contact is active).

Special Instructions in Xero if you have already reconciled the original payment

Here is how to reverse a payment in Xero that you have already reconciled as part of a larger batch.  There are two options.

Option 1 works best for small batches or if you are using a clearing account.  The result is that the original payment and the returned funds do not show on the customer’s statement, and the original invoice is left unpaid.

  1. If you have reconciled the original payment to a batch deposit (not needed if you are using a clearing account) then unreconcile the entire batch.  This will return the deposit to the reconcile tab and leave the related payments in the bank account awaiting matching (you may want to print out the contents of the batch deposit, or keep it open in another screen)
  2. Remove & redo the offending payment.
  3. Create a Receive Money for the original amount received for the same contact and code it to suspense.  Do this from the Bank account screen – not as a payment from the invoice.
  4. Re-reconcile the deposit using the same payments as last time EXCEPT that instead of including the returned payment you include the new Receive Money transaction (not needed if you are using a clearing account – but if you are then you should code the chargeback as a transfer to the clearing account and mark as reconciled to replace the missing payment).
  5. If you do not want uCollect to automatically re-collect the original invoice you need to suspend it in uCollect.

Option 2 works better for large batches.  The result is that the customer’s statement shows the original invoice and payment and a new invoice for chargeback re-collection.  If you file sales taxes on a cash basis this method could result in early recognition of the tax.

  1. Copy the original invoice (that is now paid) or create a new one for the same contact and same dates.  Change the invoice number (we recommend using the same as the original invoice but adding a “B” or something to it).  Enter a single line for whole invoice with description “re-charge of original invoice where payment was returned.”  Code this line to Suspense with no tax (the tax has already been handled on the first invoice).  This is what you will use to collect the funds again.
  2. In the bank reconciliation screen code the chargeback to Suspense (with no tax) using the contact name.
  3. If you do not want uCollect to automatically re-collect the original invoice you need to suspend it in uCollect.

In both options you should verify that the contact’s payment details are still correct.

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