Chargeback
A chargeback is a forced reversal of a card payment, initiated by the cardholder's bank, that returns funds to the customer and deducts the disputed amount — plus any associated fees — from the merchant's next settlement.
A chargeback occurs when a customer disputes a card transaction with their bank rather than seeking a refund directly from you. The card network adjudicates the dispute and, if it rules in the cardholder’s favour, instructs the acquiring bank to claw back the original payment. The merchant typically also incurs a dispute fee — commonly £10–£25 per case — regardless of the outcome.
How chargebacks appear in Xero
Payment processors such as Stripe net chargebacks against future settlements before transferring funds, so the deduction rarely arrives as a clearly labelled bank line. Instead, your bank feed shows a payout that is smaller than expected, with no visible explanation. The original invoice in Xero still shows as paid, revenue is overstated, and the chargeback fee has no nominal code at all.
The correct treatment is to reverse the original payment allocation in Xero, raise the chargeback amount as an expense (or post it to bad debt if the customer cannot be recovered), and record the dispute fee separately as a bank charge or merchant cost. For example, if a £350.00 invoice payment is clawed back along with a £15.00 dispute fee, Xero needs two entries: a £350.00 reversal against accounts receivable and a £15.00 debit to bank charges — not a single £365.00 adjustment against income.