How to Avoid Chargebacks: Essential Strategies for Businesses

Chargebacks

Disclaimer: The content shared in this article is purely informative. We are neither attorneys nor accountants. Always consult with a professional for specific advice. We invite you to reach out to us with any inquiries.


Effective Measures to Reduce Chargebacks

Chargebacks are a common challenge many businesses face. They arise when customers dispute a transaction, and can be both time-consuming and costly to resolve. To safeguard your business, understanding how to avoid chargebacks is crucial. Here are ten strategies tailored for businesses, especially those that process hand-keyed transactions or set up recurring payments:

  1. Billing and Card Details: Ensure you obtain the correct billing address and zip code, especially for recurring payments. An address mismatch can raise flags.
  2. Include Important Details: For transactions, always capture the customer’s billing address, zip code, and CVV2. Ensure there’s a match post-authorization.
  3. Provide Detailed Invoices: Create comprehensive invoices with payment links to process transactions, giving customers a clear breakdown of charges.
  4. Transparent Return/Cancellation Policies: Display your return or cancellation policy on your receipts. It’s even better if you integrate these policies into your payment form if you’re using the FPN Payment Form.
  5. Verifications: When setting up recurring payments, confirm that the card belongs to the customer. Obtain written permission if the cardholder is different from the customer.
  6. Accessible Policies: Always display your return/cancellation policy on your website. If offering subscription services, obtain a signed acknowledgment of the cancellation policy from the cardholder.
  7. Encourage Direct Card Entry: Instead of keying cards manually or over phone calls, let cardholders enter their card details directly. This can reduce potential errors.
  8. Strengthen Fraud Protocols: Tighten the fraud protocols on your payment gateway, such as declining transactions when billing details don’t match.
  9. Stay Proactive: For businesses with recurring billing, if a client isn’t utilizing the service as anticipated, initiate a conversation. Ensure any communication is documented.
  10. Document Everything: In the event of a chargeback, have all relevant documents, such as cancellation policies, web pages, email notifications, and invoices, ready for submission.
 
Handling Real Life Chargeback Situations

The number 1 preventive action you can take as a business owner is to call the customer that is disputing the charge and have a conversation about the transaction.  So often, a spouse or another person is the primary cardholder. A secondary individual that is authorized to use the card did not communicate the transaction to the cardholder, and as a result the cardholder calls and initiates a chargeback. A quick phone call by the cardholder to withdraw the chargeback results in avoiding time, aggravation and money.    

Here is another great example of a business owner of an auto store who received a chargeback for several thousands of dollars.

After winning the first chargeback, the owner said he was worried about the possibility the cardholder will represent the chargeback and force the case to arbitration. His concern is legitimate as a cardholder can represent the charge a second time according to card brand rules. Our recommendation was to call the owner and ask a second time why did he request a chargeback and what can he do as a company to reach a mutually acceptable agreement to avoid any further incidents.  After a pleasant 10 minute discussion they reached a mutually beneficial agreement and the client agreed to not pursue a second chargeback.   

In the end, the number 1 way to reduce or eliminate a charge is have a honest, polite, business discussion  

 

Deep Dive: Understanding the Chargeback Process

What exactly is a Chargeback?

At its core, a chargeback is when a cardholder disputes a transaction. They can do this for various reasons, ranging from dissatisfaction with a product or service to unauthorized charges. Typically, a cardholder has between 45 to 180 days to file a chargeback, although there are exceptions.

The chargeback process involves several stages:

  1. Retrieval Request: Before a chargeback, there may be a retrieval request. It’s a request for more details about a transaction, and it doesn’t always lead to a chargeback.
  2. Chargeback Initiation: If unsatisfied, a cardholder can initiate a chargeback. The processing company will then alert the merchant about the dispute.
  3. Pre-Arbitration or Second Chargeback: If the initial ruling is disputed, either by the cardholder or the merchant, a second examination of the chargeback occurs.
  4. Arbitration: As a final step, if disagreements persist post-chargeback and pre-arbitration/second chargeback, the case might escalate to arbitration. Here, the card brand decides the outcome based on the evidence provided.

Recent Developments in Chargebacks and Arbitration

Chargebacks have evolved, especially concerning card-present and keyed-in transactions. It’s now more critical than ever to ensure matching AVS and CVV2 values for keyed-in transactions.

Arbitration costs have also risen. Various card brands, including Visa, Mastercard, Discover, and American Express, have recently revised their arbitration-related fees. Merchants should be fully aware of these fees before deciding to contest a chargeback.

Final Thoughts
While chargebacks are a part of doing business, understanding them and implementing strategies to prevent them can save businesses both time and money. Always stay informed and consider the costs involved in challenging chargebacks.
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