Chargeback. Just the mention of the word makes businesses and payment processors alike gulp with horror. But what does it mean when you find out that you’ve been hit with a chargeback fee? What steps can you take to try to fight the chargeback, and how can you avoid them? We are here to help.
But before I get straight to the tips, how about a brief chargeback overview, just to make sure we’re on the same page?
What is a Chargeback?
A chargeback is when a consumer has funds returned from a transaction at a business, forcibly taken from the issuing bank of their debit or credit card. In other words, it’s a forced reversal of an already cleared charge that goes over the head of the business involved due to a specific reason or fraud. The chargeback was created as a way to protect consumers from fraud as well as low-quality products and services that did not match what was initially sold.
Don't cry! Not all chargebacks are your fault, and many can be prevented.
Why Do Chargebacks Occur?
Chargebacks are obviously something to avoid. You lose the sale, and usually the goods and services involved, and to add insult to injury, incur a chargeback fee, ranging from around $15 to $100. There are many specific chargeback codes (each based on the card issuer), but the following are some of the most common reasons behind chargebacks:
- The card was fraudulent or stolen
- The cardholder disputes the quality of the merchandise or service (not as it was represented)
- The cardholder disputes that they received the merchandise or service
- The amount was incorrect or they were billed incorrectly
- Proper authorization was not obtained by the business
- The cardholder didn’t recognize the charge on their statement
- The business did not fulfill a retrieval or copy request from the card issuer
So what are some tips to keep your business protected from chargebacks (and the chargeback fees) and how to deal with a chargeback notification when you receive one?
Tips to Prevent Chargebacks Deal with Them When They Do
1. Protect your business during the sale by following correct protocol with every transaction.
There are many small mistakes that can happen when running a transaction which can result in big problems. One common issue usually involves processing the transaction incorrectly. To protect yourself and your business, always swipe magnetic stripe cards; don’t key them in. If the card won’t read, take a physical imprint of the card or ask for another method of payment. This proves that the card was actually present. Also, if the card is declined, do not try again; ask for another form of payment.
You will also need evidence that you received an authorization approval which will show up on your copy of the receipt. Make sure the receipt is formatted correctly, with return policies, business name, and the transaction information all clearly legible. Finally, get the cardholder’s signature and make sure it matches the one on the back of the card. If no signature is present or the signatures do not match, ask for a form of ID or another form of payment, as you will not be protected in the case of fraud or a chargeback otherwise.
Finally, make sure the transaction is only run once through your point of sale and your terminal. If there is a mistake, ensure that it is clearly refunded and voided with a label on the receipt. Keep records of everything.
"If the name on their statement isn’t the same or very similar as to what is on your receipt or on the front of your business, a customer may be confused and contest a chargeback."
2. Be descriptive.
This tip can be applied in multiple chargeback situations. Many times, a consumer will simply not recognize or forget about a charge they actually did make. If the name on their statement isn’t the same or very similar as to what is on your receipt or on the front of your business, a customer may be confused and contest a chargeback. Make sure that the payment descriptor (the name that shows up on their statement) is easy to understand. In online businesses, it’s smart to actually list what the charge will show up as (PayPal does this!) before the consumer gets concerned or confused about the transaction.
Another chance to be descriptive is when describing goods and services. If someone doesn’t feel that the product or service matches the description, they are much more likely to initiate a chargeback.
3. Follow-up with excellent and timely customer service.
Customers who feel dissatisfied with their product or service are likely to come to you first to resolve the issue. If you find out that a customer is unhappy with the purchase, try your best to resolve it yourself. That way, you can avoid the chargeback cycle and fees altogether.
If someone requests to cancel or get a refund on your goods or services and they are valid within your policies, make sure that you issue the credit in a timely fashion. Waiting to process the return or issue the credit can also lead to a chargeback.
4. Respond to chargebacks and retrieval requests promptly and thoroughly.
When you receive a chargeback notification or retrieval/copy request, you only have a limited window in which you can respond and defend your business. Just as important, though, is providing complete, “compelling” information which supports that the consumer actually verified the purchase or that the charge was made correctly. This means keeping records of all interactions and communication. If you fax receipts to the issuer, make sure you have a fax record and that the copy of the physical receipt from the transaction in question is legible. Provide everything that is asked for or as much as you can. Another good idea is to take advantage of Wells Fargo’s Resolve Chargeback Tool. They do a great job of listing the chargeback reason codes as well as actions to take for each code from the card issuers.
5. Fight back, but be smart.
Chargebacks can cause problems beyond losing the merchandise and funds and incurring the $15-$100 chargeback fee. Businesses with a large number of chargebacks are flagged as risky or less desirable and it could affect your ability to take credit cards or your processing rates. Therefore, if you believe you have a chance at disputing the chargeback and winning the case, it’s probably worth putting in the time and effort to respond (promptly, of course).
However, there are some chargebacks that are essentially unavoidable, in that case, it’s best to practice the best customer service you can and initiate damage control. However, if you take the preventative measures outlined above, you should be less likely to encounter chargebacks and better able to represent yourself if you do. If you're looking to find out more about chargebacks, check out VISA's awesome guide on Chargeback Management.