Short answer
Refunds reduce your net card turnover and sometimes carry their own fee. Chargebacks, where a customer disputes a payment through their bank, usually cost the sale, a dispute fee and your time. Both change your effective rate, and you need to treat gross and net turnover consistently when you calculate it.
Part of Reading statements. Start with the main guide: How to read a merchant statement, line by line
Key takeaways
- Gross turnover is before refunds. Net turnover is after refunds. Use the same one every time.
- Fees on the original sale are often not returned when you refund it, so refunds raise your effective rate.
- A chargeback typically costs the sale value plus a dispute fee, so one dispute can cost more than a month of fees.
- Check whether your provider charges per refund, per chargeback or both.
- Keeping records and responding to disputes on time is the cheapest way to cut chargeback losses.
A sale is not always the end of the story. Customers return goods. Orders are cancelled. Sometimes a customer calls their bank and disputes a payment instead of calling you. Each of these events touches your card fees in a different way, and a statement that shows only the headline numbers can hide the effect.
This guide explains how refunds and chargebacks work from a fee point of view, what they really cost, how they change the turnover figure used in the effective rate, and where to look for them on a statement.
What are gross and net turnover?
Two turnover figures can appear on a statement, and they are not interchangeable.
The choice changes your effective rate. Take a month with £10,000.00 of gross card sales, £500.00 of refunds and £150.00 of fees.
Fees of £150.00 against £10,000.00 gross and £9,500.00 net turnover.
Neither is wrong. What matters is consistency. If you work out the effective rate on gross turnover for one statement, use gross for every statement and every quote you compare it with. Our guide to the effective rate covers the formula.
What does a refund cost?
When you refund a customer, the money goes back to their card. What happens to the fees on the original sale depends on the provider.
- The original fees are usually kept. The interchange and scheme fees on the sale were paid when the sale cleared, and they are often not reversed. Check your contract.
- A refund fee may apply. Some providers charge a small fee for each refund processed, either a fixed amount or a percentage.
- The sale turnover is reduced. Net turnover falls, so the same fees now spread over less income.
Example. A business sells an item for £80.00. The card fees on it are £1.20. The customer returns it a week later and the business refunds £80.00. The business has lost the sale and still paid £1.20 in fees. If the provider also charges 20p per refund, the cost of that sale is £1.40 for nothing.
For a business with a high return rate, such as clothing or gifts, these costs can be a meaningful part of the total. A refund of 12 items a month at 20p each is only £2.40, but on top of fees that were not returned it adds up over a year.
What is a chargeback?
A chargeback happens when a customer disputes a card payment with their bank instead of asking the business for a refund. The bank can reverse the payment and take the money back from the merchant while the dispute is investigated.
- Customer disputes the paymentThey contact their bank, saying they did not authorise it, did not receive the goods or were charged wrongly.
- Bank raises a chargebackThe payment is reversed and the amount is taken from your account while the case runs.
- Provider tells youYou are notified, normally with a deadline to respond.
- You submit evidenceReceipts, delivery proof, signed documents, customer messages.
- Bank decidesThe money either returns to you or stays with the customer.
A typical sequence. Timings vary by card scheme and provider.
The key point is the deadline. Responding late or not at all usually means losing the dispute by default.
What does a chargeback really cost?
A chargeback has several costs, and only one of them is the fee on the statement.
| Cost | Example amount | Notes |
|---|---|---|
| Value of the sale | £80.00 | Taken back from the merchant |
| Original processing fees | £1.20 | Usually not returned |
| Chargeback or dispute fee | £25.00 | Set by your provider, varies widely |
| Goods lost | £0 to £80.00 | If the goods were delivered and not returned |
| Time spent on evidence | Hours | Not shown on the statement |
In this example, one dispute costs at least £26.20 even if the business wins the case. If it loses, it also loses the £80.00 sale. That makes a single chargeback worth more than a month of card fees for a small business.
A business with £150.00 of monthly card fees. A lost dispute on an £80.00 sale with a £25.00 fee.
The numbers also depend on your provider's rules. Some charge a dispute fee only when you lose. Others charge every time. Some charge an additional fee if you challenge the dispute. Ask which applies.
Chargeback ratios and monitoring
Card schemes and providers watch the share of your transactions that end in disputes. A business with a high ratio can be placed in a monitoring programme, charged higher fees or have its account reviewed. The specific thresholds are set by the schemes and your acquirer, so check your agreement. The practical point is to keep disputes low.
Where do refunds and chargebacks show on the statement?
These charges are among the hidden fees on a merchant statement that many owners only find after a dispute. For the wider picture of fixed and variable charges, see monthly fees on a card machine bill.
Look for these labels:
- Refunds: "Refunds", "credits" or "returns", often listed beside sales in a summary.
- Refund fees: A line per refund, or a count multiplied by a rate.
- Chargebacks: "Chargebacks", "disputes" or "retrievals", usually with a count and a value.
- Chargeback fees: A separate line, sometimes only in months where a dispute occurred.
Because chargebacks are irregular, they often appear in one month and not the next. If you are reviewing a single statement, ask about the surrounding months too. A one-off chargeback fee is not part of your normal cost, but a pattern of them is.
How can you reduce the cost of chargebacks?
You can cut the cost of refunds and chargebacks without changing provider.
- Make refund policies clear. Customers who know how to return an item are less likely to dispute the payment.
- Use a recognisable billing name. Many disputes happen because the customer does not recognise the name on their statement.
- Keep records for every sale. Receipts, signed delivery notes, order confirmations and messages are the evidence that wins disputes.
- Respond before the deadline. Even a short, well-organised response is better than silence.
- Refund promptly when it is right. A quick refund is almost always cheaper than a dispute.
- Check your fee schedule. Know what each refund and each dispute costs before it happens.
How do refunds affect the bill check?
Refunds and chargebacks are also a common reason a statement total differs from the amount debited. Fees for a dispute might be billed separately or after the statement date. If your bank shows more going out than the statement suggests, a chargeback or refund fee is one of the first things to check. Our guide to the bill check shows how to reconcile the two.
For consultants
If you are building a savings proposal, ask the merchant about refunds and disputes. A business with a lot of returns will see a different result from the same price list than one with almost none. Include refund fees and chargeback fees in both sides of the comparison. A provider that charges no refund fee can save an apparel retailer more than a lower percentage would. Enter the refund fee on both sides of the checkmyrates calculator so the comparison is fair.
Frequently asked questions
What is the difference between gross and net turnover?
Gross turnover is all card sales before refunds. Net turnover is gross turnover minus refunds. Use the same one for every comparison, because the effective rate changes with the choice.
Do I get my card fees back when I refund a customer?
Often not. The interchange and scheme fees on the original sale are usually kept. Some providers also charge a fee for processing the refund. Check your contract.
How much does a chargeback cost?
At minimum, the dispute fee set by your provider plus the original fees on the sale. If you lose the dispute you also lose the sale value, and possibly the goods. The fee varies a lot by provider.
Can I avoid a chargeback fee?
Not always, but prompt refunds, clear billing names and good records reduce disputes and improve your chances of winning the ones that happen. Some providers do not charge a fee when you win.
Where do chargebacks appear on a statement?
Usually in a section labelled chargebacks, disputes or retrievals, with a count and value, and a separate fee line. They may appear in only one month, so check several statements.
Do refunds affect my effective rate?
Yes. Refunds lower net turnover while many fees stay the same, so your effective rate on net turnover goes up. Use gross or net consistently when you compare.
Sources and further reading
Figures in this guide are examples to show the method. Fees, rules and rates change, so check your own statement, contract and current rules before you decide. This is general information, not financial or legal advice.