Chargebacks — when a customer disputes a transaction on their credit card — can cost your business a lot of time and money. If you have the proper systems in place, you can greatly reduce the impact of chargebacks on your business.

Why Do Chargebacks Happen?

There are several reasons a customer might initiate a chargeback:

  • the customer doesn’t recognize the name of your business on their statement,
  • the customer is disgruntled,
  • the credit card has been stolen and used by a fraudster, or
  • the customer is a fraudster who has a history of filing chargebacks.

How Can Chargebacks Impact Your Business?

Possible impacts include:

  • lost product or service,
  • lost time to dispute the chargeback, and
  • if your business is experiencing a high rate of chargebacks, being labeled a high-risk merchant. This can have consequences such as:
    • being put on a high-risk list that is used to warn other banks not to do business with you,
    • your bank withholding 5-15% of transaction volume to cover potential losses,
    • higher merchant fees and rates,
    • additional chargeback fees to your business, and
    • your credit card company closing your account.

How Can I Prevent Chargebacks and Win Disputes?

Although it is difficult to eliminate chargebacks completely, there are a few things you can to prevent them:

  • Ensure your bank and payment processor have your proper business name. If a customer doesn’t recognize the name of the charge on their statement, they may call to dispute the charge. Ensure your bank and credit card processor have your proper business name on file.
  • Implement a clear cancellation & refund policy. It’s important to have a proper cancellation & refund policy in place, but it’s also important to ensure the customer is fully aware of these policies. When possible, have the customer review and sign your cancellation & refund policy. Store this documentation for any future chargeback disputes.
  • Accept chip & PIN (Personal Identification Number) whenever possible, including for pre-authorizations. From a credit card processor’s perspective, when a customer uses a credit card chip & PIN, this proves the customer was present during the transaction.
  • Verify customer address. Often, when a credit card is stolen, the fraudster won’t know the correct credit card billing information. When taking transactions over the phone, use payment terminals and software that validate that the customer’s address is linked to their credit card issuer.
  • Subscribe to Text or Email Chargeback Notifications. Businesses are not given much time to deal with a chargeback, so ensure your processor has a system in place to text or email you when a dispute does arise. This will give you ample time to gather and submit the documents requested.

By having the proper systems in place, you will prevent many chargeback claims and increase your chances of winning a chargeback dispute. SONA would be happy to help you with any questions you have when designing and implementing these systems, in addition to answering any other payment acceptance questions.