As a merchant doing business via credit and debit card payments, your risk of chargebacks is much higher than with cash payments. There are a variety of protocols you can follow to help protect your business from potential chargebacks. Some are much simpler than others, but they all add up to fewer chargebacks overall.
You can prevent credit card chargebacks in many instances by doing the following things in your daily operations:
- Offer excellent customer service
- Give clear information on how to get a refund or exchange
- Make it easy to contact you
- Provide good information on your customers’ billing statements
- Implement fraud protection protocols
Doing all of these things can help significantly reduce the number of chargebacks you receive in your business. The goal is to make the customer happy and to give them more information than they need. If refunds, exchanges, and general information are simple and easy, the customer will be more likely to speak directly to you than to initiate a chargeback.
What are Credit Card Chargebacks?
As a new business, you might think everything is going well until you receive your first chargeback. Most new merchants will experience confusion and quickly do an online search to find out what is a chargeback, only to realize it might be best to speak with their payment processor for a concise answer.
A chargeback is an inconvenient and potentially costly item that will show up on the transaction statement of your merchant account. It is the reversal of an electronic payment that was made to you by the customer. Many merchants are caught off guard by chargebacks on their merchant account statements because they never knew there was a problem.
When a customer is dissatisfied with their product or service, they can either contact you to make it right, or they can initiate a chargeback through their card-issuing bank. If they initiate a chargeback, their bank can go into your merchant account and take back the money that the customer paid for your goods or services, without notifying you. In essence, they cancel the transaction and give the customer their money back.
Some chargebacks are legitimate because a customer was unhappy with the product or service from the purchase. However, there are also criminals who use chargebacks as a way to receive products or services without paying for them. These types of crimes happen when someone purchases goods or services, receives them, and then asks their bank to complete a chargeback to get their money back, without ever attempting to reach the merchant first or to return the goods.
Ways to Prevent Credit Card Chargebacks
You will never fully eliminate chargebacks from your business, but there are several things you can do to reduce them significantly. Putting some or all of the following protocols in place will help protect your business and make it more profitable.
- Provide excellent customer service. Happy customers are not likely to initiate chargebacks without first trying to work through issues with you. If you provide excellent service before, during, and after the purchase, customers are more likely to trust you and to give you the chance to correct any mistakes that happen.
- Ensure that product information is accurate. The more complete information you can provide, the better it will be for all parties involved, especially when selling products online. Be sure to include what the product or service is, how it works, and what the customer can expect. Setting clear expectations on the front end can eliminate disappointment and anger on the back end.
- Deliver the products in a timely manner. If you are selling physical goods online, be sure that you process the order and ship the items as quickly as possible. Additionally, make sure the customer knows the timeline in which you intend to process and ship the items. Customers may have very different expectations than you, so it’s important to communicate this information upfront.
- Make it easy to get a hold of you. This may seem silly, but it’s a mistake that many businesses make. Be sure that your customer service line, email, chatbot, or other forms of customer service communication is easy to find. Customers want to know how to reach you in the event that something is not to their liking. If they can’t get a hold of you, the next logical thing for them to do is to initiate a chargeback.
- Make return, exchange, and refund policies clear. Customers need to know, at the point of sale, what these policies are. If you outline them clearly for the customer to understand, there won’t be any questions about what they should do if they’re dissatisfied for any reason.
- Provide clear and accurate information on billing statements. As a consumer, you want to understand the charges that are on your credit card statement. As a merchant, be sure that whatever appears on your customers’ card statements is something they will understand. Be sure to use your DBA, and not your legal entity name, if they are different. If the customer doesn’t recognize the name on their credit card statement, the chances are higher that they will dispute it.
- Use AVS and CVV verifications to prevent fraudulent charges. If your business accepts card-not-present payments, it’s imperative that you have these systems in place to protect your customers’ information. These systems will check the billing address and CVV number with the card-issuing bank. If the information doesn’t match, the transaction will be denied.
- Offer purchase control settings for subscription payments. Customers who make recurring purchases from you such as membership payments or other monthly payments activate control settings for them. This will send a text or email to your customer prior to the payment date, which will allow them to confirm or deny the purchase before the charge is made. You should also allow them to manage their account online, if possible. This will let them activate, edit, and cancel their services as necessary.
- Implement fraud detection software into your point of sale system. Fraud detection is an additional step you can take to protect your customers when accepting card-not-present transactions. This type of software can detect red flags such as multiple purchases from the same IP address, and irregular activity from a regular customer. It is also sophisticated enough to recognize patterns in your customers’ behaviors and send an alert when something occurs that is outside of those patterns.
- Keep a record of all card transactions for a minimum of 6 months. Most chargebacks have a window of 180 days from the date of purchase for a customer to get their money back. Keeping a record of all transactions for 6 months or more will ensure that you have the information available if you need it. Most POS systems will do this for you automatically, but it’s also great to have a backup. If you conduct card-present transactions, it’s really important to keep copies of the physical receipts. Card-not-present transactions will obviously produce digital receipts.
Can Credit Card Chargebacks Be Denied?
In some cases, the bank will give the merchant the opportunity to respond to the claim before completing the chargeback. This is great news for your business because you will have the chance to make a case for why you should not receive the chargeback. In general, chargebacks can be denied for the following reasons:
- The cardholder waited too long to file the claim
- The cardholder bypassed the merchant and went straight to their card-issuer
- The cardholder is attempting to commit fraud
If the card-issuing bank finds any of these to be true, it’s possible that the chargeback will be denied and you will be able to keep the money from the sale. In a perfect world, you would have the opportunity to communicate directly with your customer to resolve the issue. However, if that’s not possible, there is still hope for protecting yourself and your business.
You will never be able to get rid of chargebacks 100%, but you can certainly decrease the number and frequency of them in your business. Following the steps provided above will have an impact on how well your business operates and how pleased your customers are with your services. Remember, happy customers are less likely to initiate chargebacks, so take the necessary steps and you should see a significant decrease in chargebacks over time.