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

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

By |Published On: August 23rd, 2023|

As a business owner or accountant, identifying transactions is critical for accurate bookkeeping and avoiding chargebacks from confused customers. However, vague terms like POS debit and POS purchase can obscure the source and nature of these charges. Understanding point-of-sale terminology is essential for proper accounting, reconciling accounts, and advising clients.

Thankfully this article provides in-depth information about POS debit operations and payment processing to help your business categorize transactions appropriately to ensure precise financial records, smooth operations, and helpful client communication.

POS vs. POS debit

When reviewing financial statements, you may come across terms like point of sale and point of sale debit without understanding the precise difference between the two.

While they sound similar, these terms refer to distinct concepts that are important to distinguish to understand your POS transactions better.

POS

A point of sale (POS) system is a device used by businesses for customers to pay for goods or services. POS systems can be in a physical location like a retail store or a virtual location like an online shop.

A POS system typically includes hardware (like cash registers and card machines) and software that records transactions and processes payments.

Now that you’re aware of POS systems and their components, you may wonder what is a POS debit transaction (POS debit)?

POS graphic

POS debit

Typically, transactions are described as a POS debit when completed with a POS system using a debit card.

When a customer uses a debit card to make a purchase, the funds are immediately withdrawn from the customer’s bank account, making this a unique type of transaction. This is in contrast with a credit card transaction, where the customer accrues debt that’s paid off later.

Whether customers are making a debit transaction or a credit transaction, there are bank statement descriptions to identify where that transaction is occurring.

6 alternative debit-related bank statement descriptions

Debit-related bank statement descriptions, or merchant descriptors, help identify where a transaction occurred.

Six common debit-related bank statement descriptions include:

  1. PIN debit purchase: The customer entered a PIN to authorize the payment.
  2. Signature debit purchase: The customer signed for the debit purchase rather than using a PIN.
  3. Debit card purchase: A broad description for any debit card transaction.
  4. Online debit purchase: Purchases made over the internet with a debit card.
  5. Phone debit purchase: Debit payment processing over the phone.
  6. Recurring debit purchase: Ongoing scheduled debit charges like subscriptions and monthly bills.

In addition to understanding these statements, companies should know the differences between credit and debit card transactions with a POS system.

The difference between credit card and debit card transactions with a POS system

The key difference between a credit card and a debit card transaction with a POS system lies in the source of the funds.

In a credit card transaction, the bank lends the money to the customer, who then repays it at a later date. On the other hand, a POS debit transaction directly takes the funds from the customer’s bank account.

For bookkeeping purposes, credit card transactions should be recorded as accounts receivable until the merchant receives the actual funds. Customers can contest transactions made with a credit card which can cause issues with your bookkeeping if you immediately record the transaction. Debit card transactions can be logged as cash since the money is immediately available.
Alongside credit and debit card purchases made in person, customers can purchase goods and services using a virtual POS system — card-not-present transactions.

Card-not-present transactions

Card-not-present transactions refer to any payment made where the cardholder does not physically present the card for a merchant’s visual examination. This typically happens in online transactions, where customers enter their card details into a website or app.

Since these transactions rely on transmitting card data remotely, they come with higher fraud risk and processing fees. In fact, about 70% of all card payment fraud comes from card-not-present transactions.

Businesses need to weigh the convenience and accessibility of card-not-present sales with the potential drawbacks. Here are a few ways you can minimize potential risks of card-not-present transactions which include:

  • Implement AVS (Address Verification System) and CVV checks to mitigate fraud.
  • Closely monitor statements for chargebacks and disputed payments so you can respond promptly.
  • Invest in data security and PCI compliance for storing card information.

Tools like merchant descriptors can also reduce the risk of fraudulent activity.

Card-not-present transactions definition

What is a merchant descriptor and how is it used?

Merchant descriptors appear on a customer’s bank statement to identify the source of a charge. It’s typically a combination of the merchant’s name, location, and, sometimes, the product or service provided.

Merchant descriptors include several vital functions:

  • Identify the source of charges for bookkeeping purposes. Clear descriptors enable accurate categorization of transactions.
  • Communicate specifics to customers. Descriptors jog the customer’s memory and provide purchase context to avoid confusion.
  • Reduce card disputes and chargebacks. Customers who recognize the merchant are less likely to trigger costly disputes.
  • Build brand awareness. Descriptors reinforce the business name and remind customers of their purchases.
  • Adhere to card network rules. Payment processors have requirements around descriptor formats, lengths, and restricted terms.
  • Spot suspicious activity and fraud. Reviewing descriptors helps identify any unauthorized charges.

While the functionality remains universal, there are three different types of merchant descriptors.

3 types of merchant descriptors

Merchant descriptors can be divided into three main categories — static, soft, or dynamic.

Static descriptors

A static descriptor is a standard, unchanging description that appears on all of a merchant’s transactions. It typically includes the merchant’s name and brief transaction detail.

The main advantage of static descriptors is their simplicity. Businesses can use a static descriptor to display their name to customers for every transaction. However, generic static descriptors can easily confuse customers as they provid