Credit card chargebacks are notorious for being a major headache for small business owners. However, with these tips, you can prevent and reduce them, giving you more time to run your business. 

What is a credit card chargeback?

As a consumer, you’ve probably benefited from the ease of a chargeback at some point in your life. It usually goes like this: You’re reviewing your credit card statement, and you find a charge you don’t expect. So you call the credit card company and let them know about this, and they magically take it off your statement. 

Chargebacks are great for consumers because they help protect them from clerical errors and fraud. 

How can credit card chargebacks affect your business?

Unfortunately, credit card processing chargebacks can be a huge headache for business owners. At best, chargebacks are caused by miscommunication or confusion (like when a customer doesn’t recognize your business name). These can be appealed if you can prove that you provided the product or service, but this can take time and may not be worth the value of the product or service in question. 

At worst, chargebacks can result from consumer fraud (i.e., the consumer intentionally lies to avoid paying). They can affect a business’ ability to maintain a merchant account and accept credit card payments in the future. If a business has high chargeback rates (over 1%), its reputation can be negatively impacted, and merchant account providers can impose steep fines or even put the business’s funds on hold.

Chargeback fraud consequences: By 2022, 66 billion transactions will produce 33 million disputes, Mercator Advisory Group says.

How do credit card chargebacks work?

There are four types of credit card chargebacks. Understanding these can give you an understanding of how they can be prevented and reduced. 

  • Technical: These types of chargebacks are due to expired authorization, non-sufficient funds, or bank processing errors.
  • Clerical: These types of chargebacks can come from duplicate billing, the incorrect amount being billed, or if a refund is never issued.
  • Quality: This is when a consumer claims they never received the product or service as promised at the time of purchase.
  • Fraud: These chargebacks are when a consumer claims they did not authorize the purchase or claims identity theft.

Can a credit card chargeback be reversed?

Yes, credit card chargebacks can be reversed. If you have a good relationship with your customer, you can work with them directly to resolve the situation. You can also work directly with the credit card company to prove your case if you think the customer is trying to request a credit card chargeback fraudulently. However, disputing chargebacks can cost your business time and energy, so it is ideal to prevent them.

How a Chargeback Works

chargeback flow
Image courtesy

How to prevent credit card chargebacks

Ultimately, the best way to deal with credit card chargebacks is to prevent them altogether. Try these tips to keep them from happening in the first place.

Encourage Open Communication

If a customer is unhappy, the ideal situation is that they work with your business directly to help you avoid a chargeback. Make your business easy to contact by providing a phone number and email address that people can use if they have an issue with their order. 

Provide Good Customer Service

Suppose a customer is frustrated with your customer service and doesn’t feel like their issue was adequately resolved. In that case, they can easily go to their credit card company to dispute the charge altogether. Good customer service creates a win-win situation and can prevent an angry customer from requesting a chargeback just because they’re resentful.

Be Honest

You want your products to stand out online, but don’t go overboard and misrepresent anything, because it creates a discrepancy between what your clients expect and what they get. Instead, highlight your products and services honestly by providing clear descriptions and photos to avoid confusion.

Have a Clear Merchant Account Name

If your business name is “Tia’s Tacos,” and it shows up as “Mary’s Catering” on your customer’s credit card statement, they will be confused. Ensure your business name matches the merchant account name that shows up on your customer’s credit card statement to prevent this type of confusion-based chargeback.   

Communicate Additional Fees

Some small business owners charge additional fees for processing a credit card. If you do, then communicate this with your client before you charge them. As a consumer, there’s nothing more confusing than seeing a larger charge than what you thought you were paying.

How to reduce credit card chargebacks?

Not all chargebacks can be prevented, but with good business practices, you can strategically reduce credit card chargebacks to keep your business in good standing with merchant account providers.

Set Clear Policies

Policies are helpful tools when you are disputing a chargeback. Make your shipping and return policies clear to help support your future credit card chargeback cases.

Ditch the Paper for Better Security

You may want to rethink your business security systems if customers have to write down their credit card information and someone else types it into the system. Transactions with a credit card reader are much harder to dispute, and as a bonus, they generally cost the business less in merchant fees because they’re less risky.

Keep Good Records

Require a signature for all of your credit card transactions, and save the signed copies for your records. 

Up the Security

If you accept credit cards without the credit card being present, make sure you use additional security features like having the customer enter the billing ZIP code or the CVV code. 

Be Proactive

Audit your credit card transactions and monitor them for fraud and mistakes. For example, if you see a duplicate order for the same amount, research if it was two legitimate transactions of the same amount or if it was a mistake. You should also review orders from foreign countries that do not ordinarily purchase from you as they are more likely to be fraudulent.  

Get Proof of Delivery

It may cost more to ship a product and get proof of delivery, but this is the best way to dispute a chargeback, so it’s worth the extra fee.

With diligence, chargebacks can certainly be prevented and reduced, saving your business time and money, and help you maintain a stellar reputation.