Chargebacks: What they are and how to avoid them.

If you’re a business owner, one word should strike fear into your heart. Chargebacks. Fearful yet? You can reduce the fear and chargebacks with a few easy steps. A chargeback is what happens when a customer disputes a charge on her credit card. There are many different reasons why a consumer would dispute charges and file a chargeback claim. There are billing errors like being double-billed or an incorrectly billed amount, or a discrepancy between your merchant name on the statement and the name of your store. The customer might not be happy with the purchase or have received the correct merchandise.

And then there’s fraud. Identity theft or a stolen card is the most common reason for a chargeback claim. Less common is a dishonest customer who’s trying to scam your business by claiming that the merchandise was never received.

A chargeback against your business means that you have to pay the disputed amount. Your customer gets the money refunded back to her credit card. If you have a chargeback, the fees start adding up quickly. There’s the initial price of the merchandise that you have to absorb, plus the possible absence of the merchandise. Then, there’s a fee for the retrieval requests, which are requests made by the bak when a cardholder (your customer) asks about or disputes a charge. They tend to be $5-15, and if the resolution of the dispute does not come down in your favor (they’re disproportionally in favor of the cardholder), you may have to pay chargeback fees which vary from $15-40. On top of all of those fees, if your business has too many chargebacks (usually exceeding 1% of your total sales volume), your business might be forcibly enrolled in a chargeback monitoring program, which also comes with a hefty $5,000 fine. Ouch! If you’re unlucky enough to get to this point, your account is likely to be cancelled by your bank or credit processor.

How can you avoid the whole chargeback process?

It’s simple. Be more responsive with your customer. Aim for customer satisfaction on every level. A customer who feels satisfied with a store is less likely to start a chargeback. Even if she’s unhappy, she probably won’t go the extra step and contact her credit card company.

Be more responsive if there is a chargeback. If you receive a retrieval request, address it immediately so it doesn’t automatically become a chargeback.

Require physical use of the cards – card swipes if it’s done in person or the CVV code if it’s not done in person. This proves that the person making the purchase has physical possession of the card Keep immaculate records. It’ll be easier to provide records in case of a chargeback, and will help you with your normal business dealings.


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