Knowledge

Late Presentment Chargeback

late-presentment

Why Did I Get a Late Presentment Chargeback?

Chargebacks can be filed against merchants for a wide variety of reasons. Unfortunately, a common cause of chargebacks is merchant error. The late presentment chargeback is a perfect example.

Fortunately, since late presentment chargebacks are caused by faulty business practices, they can be easily avoided.

Processing a Credit Card Transaction

Before delving into the ins and outs of late presentment chargebacks, it's important to understand the stages of processing a credit card transaction.  Let’s take a step back and review.

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Processing a credit card transaction involves multiple entities as well as four distinct stages: authorizing, batching, clearing and funding.

Stage #1: Authorizing

Before completing a transaction, the merchant must request authorization. This process ensures the card hasn’t been reported lost or stolen, the cardholder’s account is in good standing, and the account has sufficient funds available to cover the transaction.

While there are many steps involved in an authorization request, it only takes a couple of seconds to complete the entire process. If the merchant receives an approved authorization request, the transaction can be completed and the processing progression will advance to the next stage.

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Stage #2: Batching

After authorization is obtained, the merchant will create a batch of payments.

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Stage #3: Clearing

Clearing transactions moves the payment process from the acquiring bank, to the issuing bank, and back to the acquirer.

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Stage #4: Funding

The final stage of processing a credit card transaction involves depositing the funds in the merchant’s bank account.

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Explaining Late Presentment Chargebacks

The networks define presentment as the act of submitting a transaction for clearing. Therefore, if a merchant waits too long to present a transaction, the merchant runs the risk of experiencing a late presentment chargeback.

But how late is too late?

MasterCard and Visa have very different approaches to late presentment chargebacks.

MasterCard’s Late Presentment Chargeback

MasterCard uses reason code 4842 for late presentment chargebacks if the cardholder’s account is permanently closed and the acquirer presents the transaction after one of the predetermined time limits:

Action Taken Applicable Region Late Presentment
Transactions completed with electronically recorded card information (card-read or key-entered) All U.S. merchants More than 7 calendar days after the transaction date
Transactions completed with manually recorded card information (imprinted or handwritten) Intra-United States transaction More than 14 calendar days after the transaction date
Non-Intra-United States transactions More than 30 calendar days after the transaction date
Transactions with delayed acquirer presentment that’s due to one of various reasons, including national bank holidays, if the merchant processed the original transaction within the 7 day time limit Intra-United States transaction More than 14 calendar days after the transaction date
Non-Intra-United States transactions More than 30 calendar days after the transaction date

Merchants should be sure to check MasterCard’s chargeback regulations and guidelines for presentment time frames that apply after previously filed chargebacks for other reason codes (like incorrect currency code).

MasterCard also states:

  • A payment transaction must be presented in clearing within one business day of the authorization date.
  • A contactless transit transaction must be presented in clearing within 14 calendar days of the authorization date.
  • The issuer must use good-faith efforts to collect the transaction amount from the cardholder before it exercises this chargeback right.
  • The issuer cannot submit a chargeback with reason code 4842 if the account is in good standing.
Representment Options

If a mistake was made and the transaction was presented late, the merchant will need to accept the chargeback. However, if the chargeback was issued in error, there are representment options available.

  • An acquirer can re-present with documentation that proves the correct transaction date (if recorded incorrectly) and that the applicable clearing deadlines were met.
  • A merchant can dispute a chargeback if the cardholder’s account wasn’t permanently closed after the chargeback was filed.
  • If the task of processing the transaction was delayed because of approved exceptions to the clearing deadlines, the merchant can dispute the chargeback.

Visa’s Late Presentment Chargeback

Visa uses reason code 74 for late presentment chargebacks if the transaction was not processed before the predetermined time limit and the cardholder’s account is not in good standing on the chargeback processing date.

A chargeback with reason code 74 only applies if the processing date is more than 10 calendar days after the transaction date (20 days for merchants with multiple merchant outlets) for U.S. domestic transactions and the account is not in good standing, including “not sufficient funds.”

A late presentment chargeback can also be filed if the processing date is more than 180 days after the transaction date (regardless of the cardholder’s account status).

Representment Options

Representment options are quite limited for late presentment chargebacks. If the merchant failed to process the transaction in a timely fashion, the chargeback must be accepted.

If the chargeback was filed in error, the acquirer can dispute the chargeback by sharing the correct transaction date with the issuer.

Prevention is Key

Because there are such few representment options available, late presentment chargeback prevention is essential. Fortunately, by adhering to business best practices, merchants can easily avoid this type of chargeback.

Specific examples of late presentment chargeback prevention include:

  • Using Visa Account Updater. This tool provides merchants with updated card information in situations where cardholders forget to notify merchants facilitating recurring payments that their account information has changed. This helps reduce the risk of presenting a transaction to a closed account.
  • Forgoing an authorization-capture style of processing. Be sure to check our blog article highlighting the benefits of authorization holds. Basically, if a merchant uses a hold, there is time to validate the transaction and void it if necessary. Because the merchant didn’t technically charge the card yet, this temporary hold helps the merchant avoid a chargeback. However, as soon as the transaction has been settled, it is immediately eligible for a chargeback. While it isn’t advantageous to immediate settle transactions, merchants should still clear them very quickly (within one business day).
  • Rechecking authorizations. If an authorization hold has matured, it is wise to recheck the authorization before processing the transaction. Even if the initial authorization indicated the account was in good standing, the condition of the account may have changed.

Chargebacks911® uses Intelligent Source Detection™ to determine the true cause of chargebacks. We conduct a 106-point inspection of business practices, identifying weaknesses in policies and procedures that could be triggering chargebacks.

If you’d like help determining which merchant errors are causing chargebacks, let us know. We’ll help you reduce risk and retain more profits.


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MasterCard chargeback regulations current as of 2014, Visa chargeback regulations current as of 2015

3161    Regulations & Guidelines    

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