See how to reduce and avoid costly credit card and debit card reversals initiated by customers.

Chargebacks are highly valued as a consumer protection tool but for merchants they can bring big problems. Here’s a quick look at how chargebacks work, the challenges they pose for businesses and tips for avoiding them.

What’s a chargeback?

Chargebacks were created as a protective measure for consumers that allows a credit card or debit card purchase amount to be reversed. Legitimate reversals are requested by cardholders mainly for two reasons: dissatisfaction with a product or service or to remove fraudulent charges.

A customer might also request a chargeback when they forget about making a purchase.

Or, they may regret a purchase, seek a refund, find that one is not available under the merchant’s return policy and ask their card issuer for a chargeback. This move is called “friendly fraud.”

Some people use chargebacks to intentionally commit fraud. They’ll make a purchase and then dispute the charge under false pretenses, earning them the label “liar buyer.” They may say the goods were defective or never received. With e-commerce retailers, they might ship back a box that doesn’t contain the original item. Fraudsters often first seek a refund from the vendor; if that’s unsuccessful they’ll file a false claim with the payment processor for a chargeback.

Legitimate or fraudulent, chargebacks pose several challenges for merchants.

Challenges of chargebacks

Businesses faced with chargebacks have four key problems.

The first is disrupted cash flow. Money in your receivables is suddenly frozen or gone.

The second problem is a financial hit from the card processor; chargeback fees of $15 to $50— or more—are assessed against the merchant. (Note: Consumers Merchant Services has no chargeback fees.)

Third, the merchant has to cover labor and time costs for handling chargebacks.

Lastly, too many chargebacks will damage the merchant’s reputation with payment processors and banks. The risks here are higher fees, a suspended account and—the most extreme consequence—being added to the terminated merchant file (TMF) that makes it impossible to process future card transactions.

Merchants can dispute chargebacks with the card issuer. If successful, the funds are reinstated. However, chargeback fees won’t be refunded.

Any way you look at it, chargebacks are headaches with significant costs. 

Ways to prevent chargebacks

Businesses can reduce chargebacks by being proactive in their communications before the sale and keeping transactions as secure as possible. Specifically, they can:

• Ensure product descriptions are accurate and provide high-resolution photos to let customers know what to expect.
• Make your terms of sale, including returns or refunds, clear. Publish terms on your website, print them on estimates and receipts, and train staff to explain the return and refund policy.
• Offer prompt customer support. Try to resolve a problem with the customer before they feel they need to turn to the payment processor.
• Investigate the reasons for chargebacks. An analysis of reversed charges may reveal unclear policies, quality issues, delivery delays or other problems. If you identify a pattern, you can correct the problem.
• Keep accurate records. When you have to dispute a chargeback those records provide the evidence that shows you delivered what you promised.
• Set up your merchant account with payment processors so your business name is clear to customers when it shows up on their monthly statement. Also, include your phone number. Customers who forgot what the charge was for can then easily call you for clarification.
• Take security steps when processing card sales to avoid fraud. Make sure to get the CVV security code from the back of cards and use an address verification service. For added security, implement two-factor authentication to verify you’re making a sale to the legitimate cardholder.

Save more with every swipe with Consumers Merchant Services

Accepting more than cash and checks shouldn’t be complicated or expensive. Processing payments through our merchant processing services gives you a reliable, easy-to-use system for accepting card payments at a low cost. There are no application fees, no contracts, no setup charges, no programming costs, no supply charges, no monthly minimums, no fixed monthly lease payments, no voice authorization fees—and no chargeback fees. Learn more about saving with every card swipe here.

 

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