What is a void transaction? Examples and how they work

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Merchants often issue a void transaction receipt to prove they cancelled the transaction, giving the customer assurance that no funds were debited from their account.

This article will explore what void transactions are, how they work, and the difference between void transactions and other types of transactions.

Void transaction meaning

A voided payment means a payment that was initiated but cancelled before completion. Unlike a refund, which occurs after a payment has been processed, a void transaction stops the transfer from happening altogether.

While a voided transaction typically results in no visible deduction in the customer’s debit or credit card, the amount may temporarily appear as pending. In either case, whether it’s a credit card transaction or a debit card transaction, a void payment ensures that the purchase gets cancelled for both the customer and the merchant.

Examples of void transactions and why they happen

A void transaction can occur for several reasons, usually to prevent financial fraud or to correct a mistake. Here are some common scenarios where void payments could take place:

• Cashier errors. If the cashier enters the wrong amount, scans an incorrect item, or processes the wrong payment method, the merchant can void the transaction before it’s finalised.

• Duplicate charges. If a merchant accidentally processes a payment twice, they can void the second transaction to prevent overcharging the customer. It ensures that only the correct amount is deducted from the customer’s account.

• Customer requests. If the customer changes their mind about the purchase or notices an issue, such as an incorrect price, they can request the merchant to void the transaction.

• Suspected fraud. A merchant might void a transaction if they suspect fraudulent activity, such as a mismatched signature, or if the customer reports an unauthorised transaction.

• Technical issues. Sometimes, a void credit card transaction happens due to problems with the point-of-sale (POS) system, such as connection errors or malfunctioning equipment. Voiding the transaction allows the merchant to retry the payment once the issue is resolved.

• International acceptance. Occasionally, a void transaction occurs because the customer's card isn’t accepted while paying abroad or there are issues with currency conversion. The merchant may void the transaction to avoid incomplete charges.

In any of these cases, the customer is most likely to receive a void transaction receipt as proof that the payment was cancelled before it went through.

How do void transactions work?

To understand how void transactions work, it's helpful to first know how regular transactions are processed. Let’s say a customer purchases a pair of shoes online using a credit card. The first step in the process is authorisation, where the system checks whether the customer has enough credit available to cover the shoe purchase. At this stage, the payment is still pending, and the money hasn’t left the account yet.

If everything checks out, the next step is settlement. This is when the funds officially move from the customer's account to the merchant’s account. This step can take a few business days, depending on the bank and payment method.

Now, here’s what happens when a transaction is voided:

1. If there’s an issue with the shoe order — perhaps the customer accidentally ordered the wrong size or was charged twice — the merchant can void the payment after the authorisation phase but before the settlement. Although a void payment may still appear as pending for a short period, it will disappear once the void is fully processed.
2. After a void is processed, the merchant will be likely to provide a void transaction receipt as proof that no money was debited from the customer's account and the transaction didn’t go through.

A downside to void payments is that while the transaction is pending, the customer may not have access to the held funds, which can cause inconvenience, especially if the card needs to be used again.

What is the difference between a void and a cancel transaction?

Void transactions and cancel transactions may sound similar, but they operate differently. Voiding a transaction ensures that the sale gets erased before it becomes official, with no need for any funds to be returned since none were taken.

Cancelled payments, on the other hand, are more like refunds, as the funds have already been transferred to the merchant’s account. This option is common in online returns, where customers return a product after purchasing it, and the merchant refunds the payment. Unlike voiding, the funds are reversed back into the customer’s account after the payment has been settled.

If someone wishes to cancel a transaction from a bank account after it has been processed, they should consider contacting the merchant for a refund or disputing the charge with the bank. It’s important to note that some merchants and banks may impose a cancellation fee in such cases.

Chargeback vs. void transaction

A chargeback is different from both void and cancelled transactions. Chargebacks occur when a customer disputes a transaction after it has been processed, often due to suspected fraud or dissatisfaction with the product or service.

• In cases of dissatisfaction, the customer’s bank investigates the claim and, if validated, forces the merchant to return the money.

• In cases of confirmed fraud, the credit card issuer or bank typically refunds the money directly to the customer, protecting them from unauthorised charges.

Void transactions vs. declined payments

While both void transactions and declined payments result in the funds not going through, they differ in when and why they occur in the payment process.

A void payment happens after a transaction has been authorised but before it is finalised. In contrast, a declined payment occurs at the point of authorisation, meaning the transaction is blocked before it can proceed. The payment never moves forward, and no hold is placed on the funds.

There are a few common reasons why a payment might be declined:

• Detection of fraud

• Expired card

• Incorrect card details

• Insufficient funds

Understanding void transactions

A void transaction helps prevent errors, address customer requests, or resolve technical issues at the point of sale. Unlike refunds, where the money is returned after the completion of payment, a void transaction ensures no funds are taken from the customer’s account in the first place.

It's important to understand what a void transaction is, as it can help avoid confusion when dealing with incorrect charges or changes to a purchase.