Chargebacks are a frustrating, but often inevitable, part of running a business. Even with all the right pieces in place, businesses will mess up, a customer will get upset, or fraud will slip in. However, it’s not all doom and gloom. Merchants can take concrete steps to reduce chargebacks and respond to the ones that do occur. Here are four tips on how to avoid chargebacks and protect and prepare your business.
What is a chargeback?
A chargeback is when a customer contacts their bank and asks for a charge to be reversed.
A customer can initiate a chargeback if:
- They were a victim of fraud
- They didn’t receive an item they ordered
- They felt the product/service delivered was substandard or misrepresented by the merchant
- They were billed incorrectly
The purpose of chargebacks is to protect cardholders from fraud or deceptive merchants.
However, in addition to legitimate reasons, some customers perform what’s called friendly fraud: they receive the item or service they ordered, then request a chargeback in order to get their money back. In this case, they keep both their money and the product or service, and the merchant suffers a double whammy.
Why you should avoid chargebacks
Here are a few reasons to avoid chargebacks:
- Bad reviews and negative reputation with customers
- Your business could be classified as high risk
- Your credit card processing rates could increase
- You could even lose your merchant account and the ability to accept credit card payments
How to avoid chargebacks: prevention
The best thing merchants can do to avoid chargebacks is prevent them. Being vigilant and proactive will help merchants decrease fraud, improve customer relations, and thus avoid the majority of chargebacks.
1. Fraud prevention
Many chargebacks happen as a result of illegal credit card activity. A customer’s information is stolen and used to make fraudulent purchases. Once the customer discovers the deception, they file a chargeback with their bank to get their money back.
Merchants can prevent these types of legitimate chargebacks by screening transactions for potential illegal activity. Here are a few red flags to watch out for:
- Transactions from high-risk countries
- Unusually large orders
- Repeated failed orders
- Customers who ask to change the shipping address after paying
- Any transaction that feels fishy or abnormal
With every transaction, it’s essential that merchants confirm both the address and CVV (the three numbers on the back of the card) with the customer before allowing the purchase. Address or CVV errors are one of the biggest indicators of fraud, and double-checking these fields is a fairly simple way to weed out bad transactions.
The idea of screening every single transaction may feel overwhelming, but luckily, there are a number of tools merchants can use to automatically monitor for fraud, like fraud prevention modules, address verification services, and more.
2. Outstanding customer service
When it comes down to it, chargebacks are caused by people—people who are frustrated, angry, or upset. Maybe they received the wrong product or believe the item they received is low quality. Whatever the issue, customers use chargebacks as a substitute when they don’t want to deal with poor customer service. The number one way to turn a bad situation around and avoid chargebacks is through outstanding customer service.
Be reachable and available. Merchants should provide accessible customer support in various forms, like phone, email, and chat. Provide your contact information on your site and any social media channels.
Respond quickly to issues. Don’t delay when dealing with unhappy customers—the longer it takes you to respond, the more likely it is the customer will simply give up and file a chargeback.
Communicate problems as soon as possible. If you run into a problem—say, bad weather that affects shipping times or unexpected delays in the supply chain—let your customers know as soon as possible. As long as you’re communicative and transparent, most customers will understand and adjust their expectations accordingly.
Make the return/refund process simple and easy. Unfortunately, customers don’t always follow the right channels for returns or refunds. If a business’s process is too confusing or labor-intensive, customers might opt for a chargeback instead, which is much simpler on their end. Avoid chargebacks by streamlining returns and refunds for customers.
Clearly display policies. Make sure your return, refund, exchange, and any other policies are clearly spelled out on your website. Remove the potential for any surprises and ensure you and your customers are on the same page before they purchase.
Another common cause of chargebacks is shipping issues. The practices below will help you avoid shipping-related chargebacks.
Set realistic shipping times. Don’t overpromise on how quickly an item can be delivered. If a package doesn’t arrive on time, a customer could get impatient and file a chargeback instead of waiting or contacting the seller.
Use parcel tracking. Some credit card processors require their merchants to provide proof of delivery on shipped items. Parcel tracking will help you determine if customers truly received their items or not. In addition, this documentation can come in handy when you need to fight chargebacks. If you can prove the customer received their item, it could be the difference between winning and losing a dispute.
Contact customers before shipping items. Sending a quick email before shipping gives customers a chance to correct errors or cancel orders.
4. Make sure your business name shows up on credit card statements
We’ve all had this experience: you’re checking your recent credit card statement and scrolling through transactions when something weird catches your eye. It’s a purchase you can’t remember making, and the merchant’s name that shows up on your statement doesn’t ring any bells. For many customers, that’s enough for them to call their bank and file a chargeback.
However, in many cases, it’s a legitimate purchase that the customer has simply forgotten about. With no additional information about the business that ran the transaction, the customer has nothing to go on, and they assume it’s fraud.
To prevent this honest mistake, contact your credit card processor. Ensure your business name shows up on customer credit card statements. If possible, include your phone number too. Give your customers every available chance to recognize your business, remember the purchase, and contact you directly if necessary.
How to respond to chargebacks
Unfortunately, even with a merchant’s best efforts, you can’t always avoid chargebacks. If a chargeback occurs, you can either accept the fines and penalties or choose to fight it. Each merchant will have to do a cost-risk analysis to determine if the time and money spent fighting a chargeback will be worth it, as the process isn’t easy and can take some time.
1. Keep detailed records
The first step in fighting a chargeback is compiling relevant records. If you have to dispute a chargeback, detailed record-keeping could be a lifesaver. Save receipts, contracts, transaction date, amount, and authorization information. Each of these details could help sway a decision in your favor by proving a transaction was legitimate. (One simple way of automatically saving these details is by using a payment gateway with unlimited transaction history.
2. Dispute the charge
Merchants have the right to dispute chargebacks. You may want to fight a chargeback if you have strong proof to back up your case or if you’re trying to avoid a black mark on your record.
Because chargebacks are intended to protect cardholders, merchants are already at a disadvantage from the start. The arbiters of chargebacks (the customer’s issuing bank) will already be on the customer’s side, and the burden is put on the merchant to prove their case. However, that doesn’t mean merchants always lose. With enough evidence and proof that they’ve followed proper credit card processing protocols, merchants can overturn chargebacks and recoup their lost money.
Check out this guide for a detailed look at the entire chargeback dispute process.
3. Use a chargeback management team or service
Fighting chargebacks can be exhausting. With everything else going on in your business, you may not be able to devote the time and resources you’d like to dealing with chargebacks. That’s where a chargeback management team comes in. These teams of third-party experts automatically monitor your transactions and alert you whenever a chargeback is filed so you can take immediate action. Then, they can walk you through the chargeback process. Some chargeback management services are standalone, while others come as part of your credit card processing and merchant account.
Avoid chargebacks and protect your business
Nobody likes chargebacks. But with the right tools and knowledge, merchants can protect and prepare their business and learn how to avoid chargebacks.