How to fight chargebacks 2016-02-01T13:10:19+00:00

How to fight chargebacks

A guide to Chargebacks and ways to fight back

For merchants that invest time, energy and efforts into the smooth operation of their business, the term “chargeback” often brings a feeling of dread to an otherwise calm business. A chargeback is an official request from a cardholder for the reversal of a specific credit card transaction. While issuing a refund for goods or services can be a disappointment in itself, it’s the associated chargeback costs and penalties that many merchants fear most.

Chargebacks were introduced primarily as a consumer protection against fraudulent charges and unfair or deceptive business practices.  Chargebacks also serve an important purpose in helping the major credit card brands manage and assure that their participating merchants maintain a certain level of quality for goods and services.

What causes chargebacks?  

Most chargebacks fall under one of the four general categories recognized by the credit card industry.

Quality:      Goods or services are not received or not provided at the quality level promised by the merchant.

Technical:  Caused by expired authorizations, bank errors, non-sufficient funds or other tech related problems.

Fraud:        Caused by unauthorized credit card purchases, such as those involving identity theft.

Clerical:      Often caused by human error, such as incorrect charge amounts, duplicate billing or missing refunds.

The chargeback process begins when a dispute to a billing charge is officially filed by the cardholder with the corresponding bank that issued the card, although the bank may also automatically generate a chargeback if it observes a suspicious charge.  From that point, the bank will notify the merchant that a chargeback has been filed and conduct an investigation. If the investigation finds the cardholder’s complaint to be valid, the charge is reversed and a chargeback penalty is imposed upon the merchant of up to 100.00.  Even if the complaint is dismissed by the bank as baseless, however, the merchant still pays a penalty and the chargeback is noted on the merchant’s record.  Too many chargebacks in a given period and the business can be branded high risk, incur higher processing rates, and/or lose its merchant account entirely.

How to avoid Chargebacks

It’s never too early for a company to safeguard against potential chargebacks.  Steps can be proactively implemented long before a customer makes first contact.

– Provide clear and accurate descriptions for all products and services in catalogs, websites or any other marketing materials. Don’t cultivate unrealistic customer expectations by offering items or services which may no longer be available.

-Make your return policy accessible, easy to find and simple to understand.

– Provide a convenient and accessible customer service option for customers. If possible, provide customer service 7 days a week 24 hours a day. If that is not an option, post the hours customer service is available and an approximate time frame for a customer inquiry to be addressed. For example: If customer service is unavailable on weekends, note that customer inquires will be promptly returned on Monday when the office reopens.

-Be clear on shipping costs and fulfill shipping deadlines.  Keep customers informed and updated via package tracking information. If a delay occurs, inform the customer immediately and provide an alternate solution such as complimentary shipping or a discount for the inconvenience.

-Keep inventory and shipping departments organized and efficient to avoid delays and damaged products. If a package is lost or damaged, or an ordered service is no longer available, inform the customer as soon as possible. And never arbitrarily assign a substitute.

-Provide a recognizable company name on billing statements to prevent customer confusion regarding credit card charges.

-When a refund is promised, notify the customer of the exact amount and when they can expect to receive the refund.

Chargebacks can be legally filed up to two years from the date of purchase.

Saving purchase records for at least 2 years can be a good idea for businesses.  In the event a chargeback is filed, detailed records including receipts, signatures, and proof of delivery can often resolve a chargeback investigation favorably for the merchant. As with most business related conflicts, the best solution to a problem is often to make all effort to prevent it from occurring in the first place.