The word “chargeback” can send a shiver down the spine of any merchant. Dealing with chargebacks, which occur when a cardholder disputes a charge that he or she did not authorize – and may or may not be the result of fraud – are a complex, expensive and often aggressive problem. As it is designed for consumer protection and to increase consumer confidence, the often lengthy chargeback process rarely favors merchants. The end goal for issuing banks and credit card companies is to keep their cardholders happy, so they often require very little proof to validate a dispute, leaving the onus on the merchant to do all of the legwork in an attempt to make his case. This is often a costly hassle, as the burden of proof to show that the customer’s purchase was legitimate falls on your shoulders, and should the customer prevail in the dispute, you lose both the product/service sold and the revenue from the sale. In addition, the fees and penalties charged by banks and processors can make even the disputes that turn out in the merchant’s favor quite expensive.
The most important thing to do when you are informed that a chargeback has been filed against your business is to remain calm, so you can have a level head as you begin to gather the information you need to fight the chargeback. While the 45 days you have to submit documentation may seem like a lot, you definitely don’t want to wait until Day 44! Start pulling your documentation together as soon as you are notified of the chargeback, so you have ample time to review the documents, request additional information or clarification and request amendments, if necessary.
Besides waiting too long to begin gathering your information, there are other mistakes merchants can make when dealing with chargebacks, any of which can end up costing you a lot of time and money. Below are some of the most common mistakes merchants make, and how you can avoid making them:
- Not knowing the chargeback reason codes. Chargeback reason codes are a classification system that identifies the type of chargeback, the reason for the dispute and the required elements necessary for a merchants to dispute the consumer’s claim. Understanding these codes is crucial to building your defense in the event of a chargeback. The website Chargebacks911 has an excellent chart of the reason codes and what they all mean. It’s worth saving the link for future reference.
- Not fighting the chargeback. Wayne Gretzky once said “you miss 100 percent of the shots you don’t take.” Of course he was referring to hockey, but it applies to nearly every area of life and business, including chargebacks. If you don’t dispute the chargeback, you will not prevail, even if you are in the right and stand to receive a substantial amount of money. While it may not be worth it to challenge ever chargeback, as a merchant you likely want to recover as much of your money as possible, so you should look at the situation carefully before deciding not to go forward with the challenge.
- Poor customer service. Excellent customer service should always be the number one priority. Not only will you have happier customers, but it can also help reduce chances of chargebacks – good customer service that allows for the resolution of any issues can reduce the likelihood of a chargeback being filed. Also remember it is in your best interest – and that of your customer’s, as well – to make every effort to resolve an issue to the customer’s satisfaction, so a chargeback doesn’t get filed. Sometimes it’s worth giving a customer a refund to keep goodwill and prevent a chargeback.
- Ignoring red flags. Keeping good records of your chargebacks can help to alert you to areas that may need improvement. If you notice the same chargeback reasons keep coming up, that is an indication of an area of your business that needs work. Some chargeback reasons may even lead you to discover elevated fraud risk. If that happens, you will likely want to review your fraud prevention program and work on improving or updating it. Ignoring these indicators can be disastrous – not only does the potential for increased chargebacks exist, but you could also be opening the door to fraud, which not only puts your business at risk, but also your customers and their data. Once breached, that trust is a tough thing to get back, so it is imperative you do your best to do what you can to not lose it in the first place.
- Not working with your processor. Your credit card processor has likely been through the chargeback process with other merchants. They have all the tools and resources to help you get through yours. Prevailing in a chargeback benefits your processor as much as it does your business – they want to see you win. Not tapping in to this resource is a mistake that can cost you dearly in the long run.
As a merchant, you are likely to get hit with a chargeback sooner or later, but the important thing to remember is not to panic – every chargeback is not going to go against you, or cost you a lot of money. If you do your due diligence and work with the credit card company, your processor and your customer, and avoid making the mistakes listed above, you can reach a mutually satisfactory solution.