Credit Card Security Deposits

Stripe credit card holds / authorizations can be challenging. And sometimes the customer can't provide a COI (Certificate of Insurance). Your last resort then might be to collect a security deposit.

Here's how to collect that security deposit as a credit card payment while making the customer pay for the Stripe transaction fee.

How to collect a security deposit via Stripe and fully refund it

info

This recipe assumes the security deposit will be fully refunded. If instead you need to use all or part of the security deposit for L&D, also see the next section.

caution

We are not licensed accountants or tax attorneys, and this is not tax advice. Please verify this recipe with a licensed professional or your tax authority.

1. Create an inventory item for the Security Deposit. Make it a Service purchase type and Non Taxable with a price of $0.
2. Create another inventory item for the Non Taxable Credit Card Fee. Make it a Service purchase type and Non Taxable with a price of $0.
3. Create an order with an order type of Security Deposit.
4. Add the Security Deposit item. Change the line item price to the desired amount.
5. Add the Non Taxable Credit Card Fee item. Change the line item price to what Stripe will charge as a processing fee. Usually this is 2.9% + $0.30 for US and Canadian customers. Don't collect more than the Stripe processing fee, otherwise you'll have to declare that as income.
6. Keep the Credit Card Fee (%) value on the order's Billing tab at 0%. This is because we'll be refunding the security deposit but want to keep the credit card fee. If instead you omit the Credit Card fee line item and instead set the processing fee here, when you cancel the security deposit line item, the processing fee value will recalculate to $0.
7. Make sure the Allow Payments on Orders setting is enabled in your Order Settings so that you can receive a payment to the order without creating an invoice. We don't want to pollute the Sales Summary reports with security deposits.

8. Charge the credit card on the order's Billing tab in the Payment section.
9. To fully refund the security deposit, cancel the Security Deposit line item. This sets the line item value to $0 and the value of the order is now only the value of the credit card fee line item. The order should now have a nonzero balance, which is what should be refunded.
10. Go to the Stripe payment on the order's Billing tab in the Payment section. Click the Refund button. The amount to be refunded should be only the amount of the security deposit line that was canceled. The value of the credit card fee should remain on the order and should not be refunded.
11. Change the order status to Returned.
12. Depending on how you want to account for this in your books, you could create an invoice if you want this income to appear in your Sales Summary Report. If the customer requires a receipt, you would have to invoice the order.

Should the credit card fee be taxable?

caution

Again, this is not tax advice. Please verify this with a licensed professional or your tax authority.

Usually, if a credit card fee is incidental to a taxable transaction, it's taxable. If it's incidental to a non-taxable transaction, it's not.

So for non-taxable security deposits, credit card fees are most likely not taxable.

How to apply a security deposit collected via Stripe to L&D

1. Go to the order menu and change the Order Type to Loss and Damage
2. Add the line items of the L&D items and adjust the line item prices to the desired amount.
3. Cancel the security deposit. The order may now have a nonzero balance.
4. If the order has a nonzero balance, go to the Stripe payment on the order's Billing tab in the Payment section. Click the Refund button. The amount to be refunded should be the difference between the security deposit and the L&D amount. The value of the credit card fee should remain on the order and should not be refunded.