What Is a Sales Draft and How Does It Work in Card Transactions?

A sales draft is a key document in credit and debit card transactions, serving as proof of purchase for both merchants and customers. While digital receipts are more common, sales drafts remain relevant, especially in disputes or chargebacks.

Understanding how they function helps businesses maintain accurate records and protect themselves from financial losses.

Purpose in Card Transactions

Sales drafts document a cardholder’s authorization to charge their account. This is crucial when electronic authorization systems fail, such as during network outages or manual card imprints. Without a signed or authenticated draft, businesses may struggle to prove a transaction was legitimate if a customer disputes the charge.

Card brands like Visa, Mastercard, and American Express require merchants to provide transaction documentation when requested. Failure to do so can lead to penalties or chargeback losses. Visa’s dispute resolution framework, for example, allows issuers to request supporting documents, including a sales draft, to validate a transaction under fraud or processing error claims.

Sales drafts also assist in financial reconciliation. Businesses use them to verify daily sales totals, match transactions with bank deposits, and identify discrepancies that could indicate fraud or clerical mistakes. This is particularly relevant in industries with high transaction volumes, such as hospitality and retail, where even small inconsistencies can lead to financial losses.

Key Components

A sales draft includes essential transaction details, ensuring clarity in financial records. It lists the merchant’s name, location, and merchant identification number (MID), which acquiring banks and payment processors use to track transactions. For businesses with multiple locations, accurate merchant identifiers ensure revenue is correctly allocated.

Transaction details such as the date, time, and total amount charged provide further validation. Many modern drafts also include itemized breakdowns, listing purchased goods or services for greater transparency. This helps prevent disputes, as customers are more likely to recognize transactions when they see a clear description of what was bought.

Cardholder authentication reinforces the legitimacy of the charge. In card-present transactions, this typically includes an imprint of the card details or an electronic authorization code, while some merchants may still require a physical signature. For card-not-present transactions, such as online or phone orders, the draft may capture security measures like AVS (Address Verification System) responses or CVV codes to mitigate fraud risks.

Record-Keeping Requirements

Maintaining sales drafts is both a best practice and a regulatory obligation. The required retention period varies by jurisdiction and industry. The IRS generally recommends keeping transaction records for at least three years for tax audits, while some states mandate longer periods for businesses handling high volumes of consumer transactions. Payment networks like Visa and Mastercard typically require merchants to store sales drafts for at least 18 months to comply with chargeback and retrieval request policies.

Proper storage is essential. Businesses must ensure both physical and digital copies of sales drafts are securely stored to prevent unauthorized access or data breaches. The Payment Card Industry Data Security Standard (PCI DSS) outlines guidelines for handling cardholder data, including encryption requirements for electronic records and access controls for physical documents. Non-compliance can result in fines ranging from $5,000 to $100,000 per month, depending on the severity of the violation and the size of the merchant.

Beyond compliance, organized record-keeping supports financial reporting accuracy. Sales drafts serve as source documents for revenue recognition under Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Companies undergoing external audits must ensure these records align with reported revenue figures. In industries like hospitality and retail, where deferred revenue and refund liabilities are common, maintaining detailed transaction records helps reconcile financial statements.

Role in Handling Disputes

Sales drafts are critical in resolving transaction disputes, particularly when customers claim they did not authorize a charge or did not receive the goods or services as expected. When a cardholder initiates a chargeback, the merchant’s acquiring bank often requests supporting documentation. A well-documented sales draft, especially one with itemized purchase details or proof of service delivery, can serve as strong evidence to counter unwarranted claims. Without sufficient documentation, merchants risk losing disputes by default, leading to financial losses and increased chargeback ratios.

Payment processors and acquiring banks monitor chargeback rates closely. Excessive disputes can result in merchants being placed in high-risk monitoring programs, such as Visa’s Dispute Monitoring Program (VDMP) or Mastercard’s Excessive Chargeback Program (ECP). These programs impose stricter oversight and, in severe cases, can lead to termination of merchant accounts. Maintaining detailed drafts and training staff on proper transaction documentation can help businesses avoid these costly consequences.

Potential Fees Linked to Draft Requests

Sales drafts protect merchants, but retrieval requests from banks or payment networks can introduce costs. These requests occur when a cardholder questions a transaction, prompting the issuing bank to seek supporting documentation from the merchant’s acquiring bank. If a business fails to provide the requested draft within the stipulated timeframe, typically 10 to 30 days depending on the payment network, it may automatically lose the dispute and incur financial penalties.

Retrieval fees vary by processor and card network but generally range from $5 to $15 per request. While this may seem minor, high transaction volumes can lead to significant cumulative costs, particularly for businesses in industries prone to disputes, such as travel, hospitality, and e-commerce. Some payment processors also impose administrative fees for excessive retrieval requests. Businesses that proactively store and organize sales drafts can minimize these costs by responding promptly to retrieval requests and reducing the likelihood of chargebacks escalating into costly disputes.