What does "reference" mean when transferring money?

You will encounter the term “transfer reference” code/number every time you initiate a financial transaction. In addition to bank transfer reference, you will also be asked to furnish a reference code when making payments through debit and credit cards, direct debit and even for a standing order.

Moreover, the transfer reference code/number applies to all forms of transfers, be they personal or commercial. So, service and product buyers as well as merchants and businesses should be aware of what reference means. Continue reading to know more…

WHAT EXACTLY IS “REFERENCE” IN TERMS OF MONEY TRANSFER?

A unique alphanumeric code that is applied to financial transactions, you can think of the payment reference number as a message to the payee that helps to:

· Relay the purpose of the payment or

· Identify the payer

When making a personal payment, you can add a message describing the purpose of the transaction such as “food bill”, “taxi ride” or “movie tickets” or a short explanation of whatever the payment is for. Of course, in this case, the reference number/code is not really important.

However, if you are paying a business, the reference is often necessary, and a transactional requirement that should not be disregarded.

Companies will ask you to provide your transfer reference number when making the payment because it helps to link the payment to your order/user account.

WOULDN’T IT JUST BE SIMPLER TO ADD YOUR NAME OR YOUR ADDRESS AS A REFERENCE CODE?

The problem is that payment reference codes can only have 18 characters, so adding your full address is often not possible. As far as your name is concerned, there may be other clients who have the same initials or even full names.

This can create a confusing situation for the company, not to mention that it would be a needless bother for you if the payment is attributed to some other payer instead of to you.

However, don’t just assume that your customer number is by default the payment reference number as well unless it is an 18-character code. In case of longer customer IDs, it would be best to contact the merchant before transferring the payment.

HOW ARE THESE PAYMENT REFERENCE NUMBERS USED?

Depending on the service or product you are purchasing, when you make your first payment, a specific reference number is assigned to your account. In the case of bills, this number is assigned when you open or register an account with the service provider.

Once the reference number is generated and used for a transaction, the business can then track all transactions associated with that particular number. If you use a debit or a credit card to make the payment, the reference number is connected to a specific transaction.

In this case, the business can monitor all payments that were made to them through that card. Moreover, this reference number will be listed in the account statement of the card user.

WHY ARE THESE TRANSFER REFERENCE NUMBERS REQUIRED?

The channel used to make the payment does not matter, as long as the transaction goes through a financial institution, it will be one of the millions they handle almost every day. Giving a number to these transfers helps in 3 ways:

· They allow the financial establishments to track, monitor, and control the transactions and use this data to better serve the requirements of their clients.

· They allow businesses to keep track of payment receipts and services/products to be delivered in lieu of such payments.

· They enable the buyer to monitor the transfers made to purchase various products and services.

If you receive reference numbers in your credit/debit card/bank account statement, the issuer/bank will offer information on what exactly the reference number is and how to better understand your account statement.

HOW DO YOU GET INFORMATION ON THE BANK TRANSFER REFERENCE OR TRANSACTION REFERENCE NUMBER WHEN PAYING ONLINE?

FOR THE PAYMENT OF SERVICE-RELATED BILLS: The reference will usually be included in the invoice letters or the bills generated by the service provider. You can also find your reference number through your online account portal.

FOR PAYMENT OF RENT: It’s normal to use the flat number and the postcode instead of a customer or bank transfer reference number, as it helps the agent to recognize the property and hence the payer.

FOR UTILITY BILLS: Your customer ID/number will typically be your reference number for the payment of gas and electricity bills.

Often, the payee will provide the reference information that you have to include when making the payment through online banking.

Furthermore, your bank will save these reference numbers, so it is easier for you to access them when handling recurring payments.

SO, WHAT HAPPENS IF YOU SUBMIT THE WRONG BANK TRANSFER REFERENCE NUMBER?

For you, as the customer/payer, submitting the wrong transfer reference number won’t create a big issue. You certainly won’t have to pay again because the payee will be able to see the bank account from which the payment has originated and will be able to track it to your customer number.

However, it will make things hard for the payee. The ensuing confusion may also lead to disruption of services and needless phone calls from their customer service representatives.

WHAT ARE THE WAYS IN WHICH YOU CAN USE THE TRANSFER REFERENCE NUMBER AS THE CUSTOMER/PAYER?

MORE EFFICIENT INTERACTION WITH YOUR BANK: Even if a seller cannot track a particular transaction, as long as you have the transfer reference number, you can get your bank or credit/debit card issuer to check the transaction for you.

With this code, the financial institution can tell you about the amount transferred, the date and time of the transfer, details of the recipient, and details of the shop/establishment where the payment was made.

MONITORING FOR FRAUDULENT TRANSACTIONS: The reference number can also be used to confirm the location of the card terminal used for withdrawals and to inquire about the owner of the terminal. If a fraudulent transaction has been made, you can use the reference number to void/block the payment while it is being investigated.

HOW CAN YOU USE THE TRANSFER REFERENCE NUMBER AS A MERCHANT/SELLER?

It is particularly important to know about payment reference numbers and keep a track of them if you are the merchant/seller of a service or product. These transfer codes can help you to track:

· The cash flow of your business, by monitoring both debit and credit transactions.

· Individual payments made by customers to track regular clients and their purchases.

· Payments from buyers who seek a refund.

· Handle queries from clients pertaining to specific transactions/purchases.

As you can see, ensuring that the bank transfer reference field is properly filled out helps both buyers and sellers. And, now that you know how this code can help you and where to find it, you should have no problems using it as required.