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HomeBlogBusiness IntelligenceA basic guide to chargebacks

A basic guide to chargebacks

Navigating the world of chargebacks can feel daunting at times. After all, no one likes to contend with an angry customer or lose profit. Frustrating all around! In a perfect world, all customers would be happy and loyal, right? But that’s not the case. Sometimes orders get messed up due to human error or bad luck. Arghhhh!

Now for the good news? We can help you cut costs while improving the overall efficiency of your business. Keep reading to learn more about preventing chargebacks.Now for the good news? We can help you cut costs while improving the overall efficiency of your business. Keep reading to learn more about preventing chargebacks.

1. Be the Expert

In simple terms, a chargeback is when a cardholder receives a payment refund from their issuing bank. If a customer is unhappy with the product or service at hand, he or she can dispute the transaction and initiate the chargeback process.

The unfortunate news is that the chargeback system leans in favor of the consumer. That’s because the financial institution immediately issues the payment without discussing the matter with the vendor first. This means the consumer has the upper hand from the onset and the business owner is left to sort it out. That’s why it’s more favorable if the customer would discuss payment disputes with the business instead of going this route and complicating matters.

Refunds vs. chargebacksRefunds vs. chargebacks

Refunds, though not ideal, can be less complicated. That’s because, in a chargeback, the transaction is reversed. In a refund, however, the customer contacts the merchant first, and the merchant can initiate a credit. This saves the merchant on fees and other consequences associated with chargebacks.

These fees can add up fast. Chargeback fees typically range from $20-$100. Yet, the true cost of a chargeback is often up to 2.5 times the face value. In other words, for a $100 chargeback, a merchant would pay $250 in fees, fines, customer acquisition costs, and more. Yikes!

Looking at the big picture, chargebacks can negatively impact your cash flow and put your merchant accounts at risk, too. Such recurring issues can increase your merchant account costs or cause your accounts to be shut down altogether, preventing you from doing business this way.

What should I do in the event of a chargeback?

Though chargebacks can take a toll on your fiscal health, they’re inevitable. That’s why having an established chargeback process is recommended. Depending on the card network, merchants have as little as 7 days and up to 30 days to respond to a chargeback. If the business owner takes no action by the deadline, they will lose by default and may be assessed an additional fee for not responding.

Of course, no two situations are the same. So it’s helpful to have a general understanding of the process and your rights as a merchant in the event that you face such a challenge. If you’re unfamiliar with the chargeback process, here’s a framework:

  1. Business owners always have the right to dispute a charge. Even if a customer is angry or upset, you can assert yourself as a business owner.
  2. Don’t be afraid to prove your challenge to the claim. When contesting the chargeback, you must provide information like proof of shipping, receipt and proof of delivery. Record and document any and all interactions with the customer to ensure you have documentation in case the bank requests it to bolster your case.
  3.  The final and most fraught step of the chargeback process is arbitration. Arbitration gets the card association involved to resolve matters. The card associations act as mediators between the customer and the merchant.
  4. Banks don’t like to move forward with arbitration, as it’s resource-intensive. However, after this party reviews the case and a final decision has been made, the case is considered closed and the matter is considered settled.

How do I prevent chargebacks?

The easiest way to prevent chargebacks is to practice clear communication with your customers. Beyond that, there are other best practices to keep in mind, such as:

  1. Obtain proper verification at the point of sale. Make sure all customers sign their receipts.
  2. Verify that the card they present is still current.
  3. Verify the customer’s identity via the signature on the back of the card. You might ask for identification if the signature is not legible.
  4. Make sure your operation is current on security protocols, like EMV readers.
  5. If possible, capture the customer’s signature digitally and have sales staff confirm it matches what you have on record.
  6. Do not accept credit cards with no signature on the back.
  7. Ensure employees who handle credit card payments are trained on these protocols.
  8. Post your refund policy on your website and include it in confirmation emails.
  9. Don’t skimp on fraud prevention tools that align with your businesses’ needs and can save you from future headaches.

If you have additional questions about chargebacks (and how to prevent them), get in touch with our team of experts. We can help save you a headache related to chargebacks and bolster your bottom line. (512) 739-8605