QuickBooks Online Failed Merchant Payments

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General Ledger

QuickBooks Merchant Service, allows QuickBooks Online users to have a one stop shop for the entire accounts receivable process. QuickBooks Merchant Services, otherwise known as QuickBooks Payments, has tons of flexibility. Payments can be processed in a variety of ways; directly inside QuickBooks using invoices/sales receipts or with mobile devices using the QBO app. Even QBO recurring payments are easy to use.  

Let's review how these QB Payments are intended to work:

  1. QBO Transaction is created using either an invoice or sales receipt
  2. Payment is entered and processed either inside QuickBooks Online or QBO mobile app
  3. Next, a payment batch is created and waits in Undeposited funds till is clears the bank  
  4. Last, when the payment batch clears the bank a Bank Deposit for the batch is made so QBO and real-life match-up.

Failed Merchant Payments

But what happens if a bank transfer is declined or credit card disputed? That means the last step in the process (above) never occurs, and the funds never clear the bank.  The first three steps are exactly the same, but now we need to match our bookkeeping to what really happened in real-life.

Well, QBO has a new transaction type for this very situation called the Refund Receipt. The Refund Receipt captures who the payment was from, the date of the failed payment and which account to offset (Undeposited funds). By using a Refund Receipt the transaction will appear in the customer history while an offsetting entry like an expense or journal entry would not.

If the payment was declined before the payment batch is created then it's simple enough to add an alternative form of payment to the transaction and reprocess. On the other hand, Refund Receipts are used when a transaction met the initial payment requirements but failed the final stages in the payment process therefor the transaction is closed and adding a different payment method is not an option.

QBO Dashboard Alert for failed payment processing error

When a QuickBooks Payment fails an Alert message appears on your QBO Dashboard as in the example below. The Alert give you the details of the filed transaction, and prompts you to take action by creating a Refund Receipt.

In this case a bank transfer for our customer was received as a payment on a Sales Receipt, but it was cancelled due to a problem with their account.  To keep our books accurate we need to create a Refund Receipt.

Creating a Refund Receipt

You already performed steps 1 through 3 above, but since step 4 above didn't go through,  you must create a Refund Receipt and correct your accounting.

  1. Using the Quick Create, select Refund Receipt
  2. Create a Refund Receipt for the failed payment
  3. Enter customer, date and income product & service item used on the original transaction
  4. Refund from account is Undeposited Funds (as shown below)
  5. Enter the correct dollar amount
  6. Enter a Memo, something like the payment failed
  7. Create a bank deposit for zero dollars including both the failed merchant service uncleared payment and the refund receipt. 

Creating a Copy of the Original Sales Receipt

If needed, you can create a copy of the original Sales Receipt or Invoice. I recommend you use the QBO Create a Copy feature so that all the details are captured in the copy.  You should include a memo on this transaction copy stating it is 'an additional attempt to collect payment.'  You will also want to include any 'declined payment fees' you may have incurred as a result of the prior payment rejection. To create the copy:

  1. Open the original sales transaction, choose more at the bottom of the transaction and select copy
  2.  Add a Memo stating this is a copy of the failed Sales Receipt
  3.  Add new payment information and reprocess payment. 

By following these procedures, you will have cleared the undeposited fund account, and kept the customer transaction history details for future reference.