Everything You Need To Know About Chargebacks

What is a Chargeback?  

A chargeback occurs when a cardholder is unsatisfied with a transaction and requests the card-issuing bank to reverse it. This process protects customers from fraudulent actions and unauthorized transactions. Though the process highly favors clients, businesses may suffer and run losses. When a client initiates a chargeback, the funds are withheld from the company until the bank delivers its ruling. You will receive notification from the bank on a pending chargeback, and you can choose to accept or appeal it.

Chargebacks may affect any business that receives card payments, though online businesses are affected the most. The effects of chargebacks will harm your business in both the short and long run. The loss of revenue from the transaction can be a short-run effect, but you could lose your merchant account after a while if you have too many chargebacks.

Why It Occurs

There can be several causes to chargebacks like these:

  • The card being used without the owner’s permission– This situation sounds abnormal, but it sometimes occurs. In cases where a third party has figured out the card’s password, the party can purchase goods without informing the card owner. Once the cardholder notices this, initiating a chargeback is the next resort.
  • Unrecognizable charges– Such charges can entail shipping costs or insurance costs for the goods being delivered. If the cardholder is not aware of such charges and sees them on the card, that person will possibly contact the bank for a chargeback.
  • The client didn’t appreciate the work– Customers always have high expectations and can be hard to please. If a low-quality product or a damaged goods is delivered, some customers may prefer to have their money reversed instead of talking to the company’s customer service department.
  • The client did not receive the product someone wanted– Sometimes, one’s goods are lost in transit. Getting into contact with the customer and informing the person of any expected delays is always a wise decision. If the company is not aware that the customer never received goods as planned, the client will feel disappointed and may request a chargeback.
  • Placing unintended orders or multiple orders– A slip of the finger is not that rare, and it can have huge impacts. It will leave somebody with a shipment that the customer never anticipated. The purchased commodity may not be of any help to the customer, making it necessary to cancel or reverse the deal.
  • Failure to stop billing on canceled subscriptions– Companies and their clients may agree to use recurring payments for certain services. The process is often smooth, but when the cardholder decides to part with the service provider and the charges are not stopped, the cardholder may lose money. A cardholder will then file a dispute to have a chargeback initiated to get back the funds.
  • Unrecognizable business name– Purchases can be made from your online shop by clients who later notice a different name on their receipt and feel the need to reverse their money. The name may be an abbreviation of your business or a name that the clients do not recognize. Chargebacks arising from such issues can be easily solved, though avoiding them is best.

How to Avoid Chargebacks

You don’t have to be an expert in chargebacks to know that the business suffers more in the process. Businesses have to find ways of preventing chargebacks from occurring. Some of the possible ways are:

  • Updating the listed prices– Always have your item prices accurate and up to date. This process gives clients the necessary info. It is also important to inform customers of any extra fees they may find, including transport or insurance fees.
  • Use a delivery service that requires a signature once the goods are delivered– Getting clients to sign once they receive their ordered items is a good way of preserving physical evidence of a transaction.
  • Have the tracking numbers for each order readily accessible– This point gives you a good chance of knowing how far the goods are to reach their destination. It is a good way of preventing the loss of goods in transit.
  • Be quick in responding to customer issues– A customer who feels dissatisfied will feel even more agitated if there are delays in getting a response from the service provider. Reply to customer queries promptly and in a courteous manner. By doing so, you can clarify their issues and prevent a chargeback.
  • Set realistic expectations for your clients– Understand that you don’t have to promise heaven on earth to get clients. Post pictures of the exact products you are selling to attract clients with a genuine desire for that product. Some photos may cause clients to file complaints, citing the delivery of the wrong product as the cause of concern.
  • Avoid confusion by having a clear name– Ensure your branding is clear and consistent for clients, so they know who they are doing business with when giving out their card data.
  • Have clear return policies on your website– These policies can prevent chargebacks with clients by making them aware that they can return their goods and get replacements. Make the policies as clear and detailed as possible.

Handling a Chargeback

You already have the bank notification of an initiated chargeback, so what is next? 

  • Submit the necessary details as soon as possible– Get all the information you can to support your case and deliver it to the right authority within the set time limit. Being late or failing to deliver may lead to the business losing out.

Learn from the chargeback– The process may take months to complete. But whether you win or lose the dispute, you must take a lesson home with you. Carefully study the conditions and the causes of the chargeback and work towards securing your business from a repeat scenario.

Save Time, Money, & Resources

Categories: Payment Processing

Get Started

Ready for the ultimate credit card processing experience? Fill out this form!

Contact HMS

Ready for the ultimate credit card processing experience? Ask us your questions here.