What Are Chargebacks? | 5 Ways to Protect Your Business from Chargebacks

Finance

Chargebacks are an unavoidable part of any business. And, without putting safeguards in place that will allow you to navigate through them more effectively, you can expect to incur major losses and, even, a big hit to your business’s good reputation.

What Are Chargebacks? | Overview

Whether you’re in the business of selling goods or services, you should expect to have to deal with chargebacks.

To put it simply, chargebacks are disputed transactions.

Customers are given the right to dispute charges on their credit cards for a multitude of reasons. It’s added protection for them, something that allows them to buy products or services without having to worry about being forced to accept any unauthorized transactions on their account.

With a chargeback, the consumer directly asks the bank to reverse the transaction and take the money back from the business’s account to put into theirs. So, it skips a step — wherein the customer goes to the business to ask for a refund.

Problem is, it is a feature that is often overutilized by consumers. And if left unchecked, could lead to those major losses we mentioned in the beginning. So, suffice to say, minimizing chargebacks is a must and more than worth the extra time and resources required.

Or, as Jed Morley, the founder and CEO of Platinum Payment Systems (a payment processor with a long history of working with both high-risk and high-volume merchants) warns:

“Don’t fall into the trap of complacency… In today’s economy, fraud is rampant, and there are hackers everywhere looking to steal your data, your identity, and your good reputation. And just because you’re covered for now doesn’t mean that you always will be.”

Protect Your Business from Chargebacks

1. Keep Precise Documentation of All Credit Card Transactions

You really should be doing this anyway but, just in case, it should be reiterated: you need to keep records of all your card-based transactions.

At a minimum, you should have the following: credit-card transaction dates, amount of transaction, authorization information, and chain of custody (a record of the product’s journey from inventory to delivery). Having this kind of information on record is the best kind of weapon to combat chargebacks.

2. Follow the Protocols Put in Place by Your Processor

Every payment processor has protocols put in place that should be followed when accepting credit card payments.

For example, in the case of in-store credit card transactions, the employee may be required to check the card’s expiration date and enter the card’s security code manually before swiping. As for Card-Not-Present (CNP) transactions, approval of payment may require that you obtain certain information (i.e., additional identity confirmation, digital signature, customer’s IP address, etc.)

As your partner in all this, it’s important to trust your payment processor to protect you from the unnecessary risk of chargeback or fraud. In fact, most processors, like the aforementioned Platinum Payment Systems, even have added chargeback and fraud protection in their systems.

3. Use Consistent Accurate Payment Descriptors

A common reason for filed chargebacks is payment descriptors that are not consistent with the merchant’s public name.

For example, if a customer buys a product from a merchant with BLANK as their merchant name, they expect that the charge on their credit card would be from BLANK as well (if not something very similar). Otherwise, they might be sent into a panic and file an unnecessary chargeback for what they mistakenly believe to be an unauthorized transaction.

4. Be Prompt with Addressing Customer Service Issues

A good majority of consumers (about 81%) claim that they file chargebacks because it is more convenient. That is, rather than dealing with the merchant first, they prefer to go with the easiest option — directing their requests to banks.

As a merchant, you need to make sure that you are providing an easy way to resolve these customer service issues ASAP so that your customers work with you instead.

You can even set systems in place that will allow you to take advantage of chargeback notifications (brought to you by your credit card processor), to head of chargebacks by addressing the customer’s dissatisfaction.

5. Get Your Customers to Sign a Contract

Some service providers ask their customers to sign a contract that will protect them from “product is not as described” chargeback requests. These contracts, to be able to act as the merchant’s shield, include detailed and accurate descriptions of the services that they provide.

It’s a method that works for Card-Not-Present transactions as well, as you can accommodate the customer’s preference for signing the contract (i.e., faxing a signed physical copy of the contract, emailing a scanned copy of the signed contract, an electronically signed contract, etc.) 

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