POS Debit and Point of Sale Charges: Everything You Need to Know

As a business owner or accountant, discerning transactions is crucial for precise bookkeeping and preventing chargebacks stemming from customer confusion. However, terms like POS debit and POS purchase can cast a shadow on the origin and nature of these charges. Acquainting yourself with point-of-sale terminology is vital for accurate accounting, reconciling accounts, and advising clients.

POS vs. POS Debit: Decoding the Discrepancy

When perusing financial statements, terms such as point of sale and point of sale debit may appear without a clear understanding of their distinctions. Although these terms might seem interchangeable, they signify different concepts crucial for comprehending POS transactions.

Point of Sale (POS): A POS or point of sale is a device that is used to process transactions by retail customers. ^[1] It encompasses both hardware (cash registers and card machines) and software for transaction recording and payment processing. Now, armed with knowledge about POS systems, let's delve into the specifics of POS debit transactions.

POS Debit: Transactions earn the designation POS debit when executed via a POS system using a debit card. In such transactions, funds are promptly deducted from the customer's bank account. This contrasts with credit card transactions, where customers accumulate debt to be repaid later. To discern these transactions on bank statements, there are various debit-related descriptors.

Deciphering Debit: Understanding Bank Statement Descriptions

Debit-related bank statement descriptions, or merchant descriptors, play a pivotal role in pinpointing transaction locations. Six common descriptions include:

• PIN Debit Purchase: Customer authorizes payment with a PIN.
• Signature Debit Purchase: Customer signs for the debit purchase.
• Debit Card Purchase: General term for any debit card transaction.
• Online Debit Purchase: Transactions made over the internet with a debit card.
• Phone Debit Purchase: Debit payment processing over the phone.
• Recurring Debit Purchase: Ongoing scheduled debit charges, like subscriptions and monthly bills. Understanding the nuances between credit and debit card transactions is imperative for POS systems.

Decoding Credit and Debit: POS System Transactions

The primary disparity between credit and debit card transactions with a POS system lies in the source of funds. In a credit card transaction, the bank extends credit to the customer, who repays it later. Conversely, a POS debit transaction directly deducts funds from the customer's bank account. For accurate bookkeeping, credit card transactions should be treated as accounts receivable until the funds are received. Debit card transactions, on the other hand, can be logged as cash due to the immediate availability of funds. Alongside in-person purchases, virtual POS systems facilitate card-not-present transactions.

Navigating Card-Not-Present Transactions

Card-not-present transactions occur when the cardholder doesn't physically present the card for examination, primarily in online transactions. Despite the convenience, these transactions carry higher fraud risk and processing fees, constituting approximately 70% of card payment fraud. ² Mitigating these risks involves implementing security measures like Address Verification System (AVS), CVV checks, and maintaining PCI compliance.³  Merchant descriptors also play a pivotal role in minimizing fraudulent activities.

Crafting Clarity: Best Practices for Merchant Descriptors

To ensure coherent communication through merchant descriptors, follow these eight best practices:

• Include Your Brand Name: Ensure instant recognition by placing your business name first.
• Conciseness is Key: Stick to a character limit to avoid statement truncation.
• Add a Location: Specify the city, state, or country relevant to the transaction.
• Specify Purchases: Briefly describe goods or services to provide context.
• Use Recognizable Terms: Avoid confusing acronyms, codes, or abbreviations.
• Standardize Descriptors: Maintain consistency in structure and shorthand across locations.
• Check Processor Requirements: Adhere to format, length, and restrictions set by your payment processor.
• Regular Reviews: Assess descriptors periodically for clarity and relevance. Implementing these practices ensures clear merchant descriptions, enhancing payment security.

Footnotes:

1. "What Is a POS System and How Does It Work?", Investopedia, 2023. Investopedia
2. "What Experts Say It Takes to Stem the $49 Billion Rising Tide of Card-Not-Present Fraud", 25th April 2023. PYMNTS
3. "Standards Overview", PCI Security Standards Council ,2023. PCI Security Standards Council