Differences Between Chargebacks and Disputes

Chargebacks and disputes are common words in the finance industry, especially where cardholders are involved. Both terms describe transactions where errors occurred. They can have different meanings that depend on the context of the statement. Disputes arise when a client reports unclear transactions on his card to the bank, whereas chargebacks occur if the money transaction is returned to the payer. 

Some companies may refer to the entire process as a dispute, bringing confusion in the process. But none of them will refer to disputes as chargebacks. Several issues can lead to disputes, but you can solve them to prevent the reversal of a transaction. 

Different Contexts

Disputing a charge- A dispute occurs when a cardholder questions something on a statement. Some of the reasons one might argue the issue may be due to general fraud, friendly fraud, or merchant errors. The cardholder will request a chargeback through one’s bank. The bank will carefully study the reasons given by their client and act appropriately. The chargeback will start when there are fraudulent activities. If the merchant accepts the client’s request to have the transaction reversed, a chargeback will start. Some merchants may feel that such reversals may be inappropriate, and they can choose to turn down these requests.

Disputing a chargeback- Merchants have the option to decline a chargeback and fight back when a customer presents an invalid chargeback request. The merchant can present a transaction to the bank for a second time, showing that it was legit and that the deal should not have been overturned in the first place.

How to Dispute Chargebacks

Most chargebacks work in favor of the cardholder, but putting up a fight as a business owner when you feel oppressed can save you some revenue. Some chargebacks are pure fraud and can be prevented by acting promptly and consulting the bank. You can start by presenting the transaction record along with adequate evidence to indicate that the bill was valid. The bank will then use the data you provide to work out the issue. Rulings on this come from the bank and can only be compromised by the judgment of the card networks.

When to Accept Chargebacks

Merchants can choose to accept chargebacks under various circumstances. These circumstances include:

  • Basic fraud– True fraud occurs when a card is used by a party other than the cardholder to make purchases. Chargebacks were mainly introduced to fight such cases, and they can only be justifiable if the merchant accepts the chargeback.
  • When the revenue you will recover is too small– You can compare the amount of money you can gain by winning the chargeback versus the amounts you can lose if the ruling does not go your way. Considering that the chances of winning a chargeback are always minimal, letting go of minor transactions will save you extra fees. You will avoid the fines you might incur from disputing the chargeback and failing in the effort.  You’ll also save time by not going into a losing battle.

How to Prevent Escalation

You can stop chargebacks if a client contacts you before ordering one. You can do a few things to keep the issue from becoming worse:

  • Refunding the customer– For cases where the customer claims are genuine, you can send back the money to your customers through their banks. Making the refunds through their banks is more secure than other choices, as you have evidence that you returned the money. You can use this data in case a client goes ahead and files for a chargeback. But there are also low chances of encountering customers who are not satisfied with a refund.
  • Having a good customer support team– You can also hire well-trained personnel to work at your customer care desk. Find people with good communication skills and some courtesy on how to deal with the clients you serve. Give them further training on what to do whenever they encounter dissatisfied clients who threaten possible chargebacks. The best workers will have good listening skills and will be quick to understand the situation at hand. They should also have guidelines on the decision to take in different cases. The team must be quick to make the decisions that work in favor of both parties if possible. The goal is to prevent chargebacks from hitting the business. Once you notice a sizable number of disputes escalating to chargebacks even after going through your customer service team, it is high time you consider revising the team and bringing in new people to serve your work.
  • Offer alternative products– Make your customers aware of the return policies you hold in place. You can issue an alternative product when refunds are not allowed. The item can be better than the initial product delivered to the customer is always a good plan B. Offer your clients irresistible goods, including those of more superior quality than the ones delivered earlier on, and offer an apology for not meeting expectations if possible.

Despite putting in lots of efforts to curb chargebacks, they can end up appearing in your business. The best alternative is fighting them, as you get a chance to know why different customers choose that path. You get an opportunity to improve and become better to where you can prevent future chargebacks from being a threat.

Effects of Disputes and Chargebacks

All financial disputes raised against a business will always produce a negative impact. These effects can be adverse and sometimes lead to the closure of the business. They include;

  • Damaged reputation– Repeat cases of chargebacks will lead to public scrutiny of your business. A poor reputation will lead to the loss of your customers and can even prevent potential customers from doing business with you.

Loss of revenue– Every chargeback will leave your business with no revenue for each product you sell. You’ll also spend more on expenses through chargeback fines.

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