How chargeback works
The term chargeback is used for any credit/debit card transaction that is disputed by the customer. When this happens, the business receives a chargeback notice from the bank or online payment processor that the original amount charged to the cardholder has been (temporarily) debited from the company’s account. Customers usually have 120 days from delivery to file for a chargeback, whereas businesses are obliged to rebut the dispute as soon as possible with all documents proving their indemnity from the charge. After the rebuttal is filed, it could take up to 90 days for the arbitrator (the bank) to come to a decision, which could either be the refusal of the cardholder’s claim or the business losing the disputed amount for good.
But what can lead to a chargeback? While there are many potential causes, the most common reasons are as follows:
- The product or service wasn’t shipped/provided at all.
- The customer received the wrong product or it was in a defective condition.
- The cardholder doesn’t recognize the transaction.
- Duplicate transaction processing.
- The client makes a claim of fraud or didn’t authorize the charge.
Preventing chargebacks
Although it’s a frightening process, in the vast majority of cases chargebacks can be prevented to save you time and, more importantly, money. To achieve this, however, special precautions need to be taken:
Detailed description of product or service
Many times the chargeback process is initiated when the customer is supplied with a product that’s different from what they expected due to a vague description. As such, providing clear details about what the product is or what the services consist of is a must to avoid the customer feeling disappointed.
Clear refund and return policy
Showcasing a refund policy on a separate page within your online store is required by law, but it’s not enough since it should also be straightforward and understandable. Additionally, it also has to be shown on the checkout page in a shortened format so that customers can decide against purchasing should they disagree with your conditions.
Be recognizable
Being crystal clear in credit card statements in order to make customers immediately know what was charged to them can significantly reduce chargebacks. Unlike in bills – where the business’s full name, phone number, and contact information have to appear – there is no need to be overly detailed in credit card statements. Still, to make sure you aren’t incorrectly seen as a scammer or unwanted payment, it’s best to include the name of the purchase and a link to your website alongside the company’s name.
Take security seriously
When a client’s credit/debit card is used fraudulently, the business is held solely responsible. As such, your online store or the credit card processor should be capable of collecting CVC/CVV numbers or have a form equipped with AVS (Address Verification System) that will check whether the entered address matches the address on the cardholder’s billing statement.
When chargeback is unavoidable
Thankfully, payment processors and online accounting software like QuickBooks can help you out, explaining what documents are needed to build up a successful case against the claimant. In fact, having an accounting solution by your side can be a great asset since it’s a warehouse full of proof like transaction records, invoices, product or service descriptions, and much more. However, note that payment processors and online accounting software companies always ask for a chargeback fee of $15-$100, a payment that in most cases is obligatory regardless of whether the case is won or not.
Daniel C.
Inês P.
