Businesses use partial refunds to resolve billing errors, handle incomplete orders, address service issues and correct transactions without reversing the entire sale. That flexibility matters at scale: in 2024, retail return rates averaged 16.9%, representing $890 billion in returned merchandise. Understanding how partial refunds work and how they differ from full refunds, matters for customer experience, payment operations, fees, accounting and reconciliation.

Below, we'll explain what a partial refund is, how it works in payment processing, when businesses should issue one and how they affect fees and financial reporting.

What's in this article?

• What is a partial refund?
  
• How is a partial refund different from a full refund?
  
• When should a business issue a partial refund?
  
• How do partial refunds work in payment processing?
  
• How are partial refunds tied to the original transaction?
  
• What fees are refunded when a partial refund is issued?
  
• How do partial refunds affect accounting and reconciliation?
  
• How Stripe Payments can help
  

What is a partial refund?

A partial refund means returning some, but not all, of the money a customer paid for a transaction. The customer typically keeps the product or continues using the service, and the business refunds an agreed-upon portion of the original charge. The sale is adjusted to reflect that the customer didn't receive full value.

How is a partial refund different from a full refund?

A full refund returns the entire amount the customer paid and effectively reverses the transaction, while a partial refund returns only a portion and leaves the sale intact. The customer keeps what they bought and receives compensation for the part that didn't meet expectations. Partial refunds allow the business to retain some of the original payment, but full refunds eliminate all revenue from the sale. Full refunds are typically reserved for returns, cancellations, or total dissatisfaction. When the issue is limited in scope and a full reversal would be disproportionate, a partial refund is the better choice.

Both types of refunds are generally processed through the same payment method or networks as the initial charge, but partial refunds require more judgment. Someone has to decide what portion of the transaction no longer reflects delivered value. From a customer's perspective, full refunds can feel final and transactional, but partial refunds often feel more collaborative. They signal that the business is trying to resolve a specific problem rather than end the relationship altogether.

When should a business issue a partial refund?

If a customer receives only part of what they paid for, a partial refund is appropriate and should reflect the value of what actually arrived. This often applies to multi-item orders, backorders, or substitutions. Similarly, when a product is usable but not in perfect condition (e.g. minor defect, quality issue), a partial refund compensates for the shortfall without forcing a return. It can also be used when a service was delivered, but the customer experienced downtime, delays, or missing components.

Late delivery, incorrect shipping methods, or broken delivery promises are often resolved by refunding shipping fees or a portion of the order total. Partial refunds can correct errors in pricing, promotions, or contract terms and serve as goodwill adjustments that acknowledge a customer's displeasure. Partial refunds work best when the customer intends to keep the product or continue the service. If a full refund would create an unnecessary burden on operations, partial refunds can be a better option.

How do partial refunds work in payment processing?

A partial refund can only be created for a captured or settled transaction. The original payment acts as the reference point for returning the funds. The refund amount is set by the business and must not exceed the original charge. Generally, payment systems prevent over-refunding automatically. Funds are typically returned to the same card, bank account, or digital wallet used for the purchase, which helps reduce fraud and errors. A single charge can be refunded in stages (e.g. multiple partial refunds), provided the total refunded amount doesn't exceed the amount the customer paid.

Once processed, refunds move through card networks or banks and usually appear on the customer's statement within a few business days. If the original payment included sales tax or value-added tax (VAT), the refunded amount typically includes the corresponding tax portion. Refunds are typically deducted from a business's upcoming payouts or from the processor balance, rather than issued as a separate withdrawal. Then, the charge is marked as partially refunded, which preserves the full transaction history for reporting and reconciliation.

How are partial refunds tied to the original transaction?

Every partial refund is linked to a specific transaction ID or charge. Refunds are typically allowed only within a defined window after the original payment takes place, a period which is set by the processor, acquirer, or card network rules. Older transactions could require alternative reimbursement methods. The original charge remains visible and active, with all refund activity attached to it. The transaction status reflects a partial refund, and invoices, receipts, tax calculations and settlement reports continue to reference the original transaction. The refund is applied as a separate, linked transaction rather than a replacement.

What fees are refunded when a partial refund is issued?

In many payment systems, the processing fee charged on the original transaction is often retained by the processor, even when a full or partial refund is issued. That's why even a small partial refund reduces net revenue by more than the refunded amount alone, and this is why refund rates matter to your operations.

It's rare for a business to charge a customer a fee for a refund. Usually, the customer receives the refund amount specified by the business, regardless of how fees were handled in the background. But if a transaction includes commissions or platform fees, those fees are not typically returned when a refund is issued.

Though partial refunds usually include any tax that was originally charged, it's a business decision whether or not to refund shipping fees, service fees, or surcharges. Some businesses refund these fully when something goes wrong, others refund them proportionally and some exclude them entirely.

How do partial refunds affect accounting and reconciliation?

Partial refunds change the final value of a sale, which means they must be reflected everywhere that sale appears. In accounting systems, partial refunds are typically logged as returns or allowances tied to the original sale. This keeps gross sales visible while accurately reflecting net revenue. Accounting records should capture partial refunds as a reduction of incoming cash, either by lowering future payouts or drawing down existing balances.

When reviewing period-over-period performance, businesses need to account for refunds that occur in a different period than the original sale. Make sure to reverse any sales tax or VAT associated with the refunded portion as well, so tax reporting reflects what was actually earned and owed. Inventory could also need updating. Refunded items should be added back to inventory or written off if they're unsellable. The associated cost of goods should also be adjusted accordingly.

The refund should remain linked to the original payment during reconciliation so that statements, payouts and sales reports align. Clear records documenting the original sale, the refunded amount and the reason for the adjustment support audits, financial reviews and internal analyses.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

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• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.

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Learn more about how Stripe Payments can power your online and in-person payments or get started today.