Etsy Credit Refunds Hit Snags, Hurt Seller Cash Flow

Etsy buyers and sellers say the rollout of a new option to receive refunds as site credits is not going smoothly, causing confusion and delays on the buyer side that may also have a negative cash flow impact on the seller side.

Ecommerce consultant and Etsy seller Cindy Baldassi recently wrote about the issues on her Patreon page, saying when the company began testing Etsy Credit back in September, sellers were told it "would not change anything in your workflow and you’ll continue to process the same way you do today" - but that's not what happened.

On the buyer side, some shoppers don't appear to be aware that Etsy gives them 48 hours to decide if they want their refunds processed as a site credit or back to their original form of payment.

If the buyer does not make a choice within that time frame, Etsy automatically chooses site credit for them, but buyers who aren't aware of how the new process works may be frustrated by the delay and/or the default to site credit instead of a refund to their payment method.

But most troubling, the new option may cause cash flow headaches for sellers due to what Baldassi describes as an "inherent problem in how Etsy handles refunds from the seller side."

When a buyer asks to immediately cancel an order, Etsy issues the buyer the refund first, taking the money from the seller's payment account. If there is not a balance available, Etsy charges that refund to the seller's credit card on file (in applicable countries) or their bank account if that is linked instead. Only after that does Etsy issue the seller a refund for their transaction fees and other fees.

Baldassi then shared a post from a seller in the Etsy community to illustrate how the process works and the problems it can cause.

Unfortunately it seems that with the new way Etsy processes refunds that yes, sellers can effectively be charged twice, but it should only be temporarily.

From the thread below: A seller needs to refund a sale but they don’t have enough money in their Etsy balance to do so. Etsy therefore takes payment from their bank account or card.

However, at the same time as debiting the seller’s bank balance, Etsy shows a debit on the seller’s Etsy dashboard. This puts the online account figure into the negative. Effectively the seller has been charged twice for one refund.

As further sales come in the seller’s negative Etsy dashboard account balance reduces, but the money taken from their bank account is not refunded in proportion to new sales receipts. So the seller is still being charged twice. As long as the dashboard is in the negative the seller cannot receive any payouts from these new sales.

The amount debited from the seller’s bank account is held in limbo until the buyer decided upon a method of receiving their refund, either to their bank account or as an Etsy account credit.

When this happens the money debited from the seller’s bank account is released and offsets the figure shown on the Etsy dashboard, which should then return to normal, ie it will either show a zero balance if no new sales were made during this period or it will show a credit amount if sales transactions took place.

It appears that the negative balance shown in the dashboard cannot be ‘cleared’ by the seller, it depends on completion of the refund.

If the buyer hasn’t chosen a method of refund within two days then Etsy will automatically refund via the original payment method and the seller’s Etsy dashboard is ‘credited’ with the refund amount."

What has been your experience with Etsy Credit as either a buyer or seller? Let us know in the comments below!