Chargebacks and best practices to minimize them

Though chargebacks are meant to protect cardholders from items such as fraud or dissatisfactory products/services, they can majorly affect your business. Let's explore how chargebacks happen and how we can minimize their occurrence.

In this article:

1. What is a chargeback?

2. Preventative actions

What is a chargeback?

Chargebacks are when a customer contacts their financial institute to dispute a charge on their account. After the claim is made, the customers bank will open an investigation into the charges and will approve or deny it based on the evidence present.

Here are a list of categories that can constitute a chargeback claim:

• Fraud- The cardholder notices an unauthorized charge on their account and claims it to be fraud (Note: this does not extend to the cardholders family members)

• Non-delivery- Order was not delivered to the customer (this will require proof)

• Defective merchandise- Any damages or defective items received by the customer

• Item not as described- Item did not meet the description provided by the merchant

• Customer receives the wrong item- Incorrect item was received by the customer

• Incorrect or additional charges- customer paid more than the listed price for the items.

Preventative actions

Now that we know some of the perimeters that can cause a chargeback, here are some measures we can take to minimize those occurrences.

• Clearly post your refund policy- This will encourage your customers to request refunds directly from the merchant and lower the chance for chargebacks.

• Correct item descriptions- By keeping up to date item descriptions, you lower the risk of your customers being dissatisfied with their purchases.

• Clearly display your contact information- By having your contact information posted, this will encourage your customers to contact you first for any disputes.

• Minimize card not present transactions- CNP (Card not present) transactions are a higher risk factor. By minimizing this, you will lower your risk of fraud and lower the chance for chargebacks.

• Have your customers sign their receipt or enter the cards CVV- This will not only help you ensure that the customer is authorizing that payment, it will help build your case if you want to dispute any chargeback claims.

Though it is nearly impossible to eliminate chargebacks all together, by taking preventative actions such as these you will lower your chances of them occurring.

Have any other questions regarding merchant service fees such as interchange or card brand fees? check out this article for more details