Merchant account chargebacks are a dreaded event for any business that accepts credit or debit cards. They are expensive, time consuming, subject to fraud and just downright annoying.
Chargebacks are not the same as refunds which are initiated on your end when, for example, a customer returns a product. Rather, chargebacks are initiated through the credit card issuer because the customer has challenged the charge or filed some kind of complaint. It amounts to a reversal of the original transaction, and the merchant gets stuck paying a chargeback fee to boot.
The burden of proof usually falls to the merchant – to you. Credit card companies want to keep their customers happy, so they generally give them the benefit of any doubt on chargebacks. But not only do you lose the sale, you might lose the merchandise as well (or the time and expense providing a service) – plus pay a penalty (chargeback fee).
The consumer’s right to file for a chargeback is created under Federal Law and is meant to protect customers from unscrupulous merchants, shoddy goods and suspect services. Chargebacks are also caused by fraud, processing errors or problems with card authorization.
Brien Heideman, President of BadCustomer.com, calls it “friendly fraud” and says it cost U.S. retailers $11.8 billion last year. “People return used or even different items, they return items to different stores or take advantage of lenient return policies,” says Heideman, who says his site maintains the Internet’s largest shared database of people considered high chargeback risks – over 6 million records. The site also offers services to help small business owners avoid chargebacks.
Here are 10 things you can do:
1.
Identify yourself clearly: Make absolutely sure that a company or product name the buyer will recognize appears as the “descriptor” on the customer’s credit card statement. Customers will dispute charges from entities they don’t recognize. For example, if your store is Harry’s Hardware, but the charge comes through under your corporate name Harold Jones LLC, you’re asking for trouble.
2.
Seek feedback: Encourage customers to contact you first with any question or dispute. That means making it easy for them to find your phone number, email address, website or other contact information. The idea is to prevent calls going to the credit card issuer which could lead to a chargeback.
3.
Verify by email: For online or phone orders, always send a confirming email to the customer to verify. If the email bounces, or the customer won’t provide an email address, that’s a red flag. Confirming emails further reinforce your business name in the customer’s mind, helping prevent chargebacks.
4.
Be nimble, be quick: Whatever you do, do it fast. Send notices immediately, ship goods on time, perform authorizations and process credit cards on the spot and respond to any and all dispute posthaste. The longer you wait, the higher your chargeback risks.
5.
Follow procedures: If a credit card is expired, an address doesn’t match or authorization is declined, don’t complete the sale. Make sure information on receipts is accurate and legible. Incomplete information triggers chargebacks. Establish a policy of asking to see customer identification to ensure it matches the name on the card.
6.
Safeguard against duplicates: Be sure transactions are entered only once – a duplicate could trigger a chargeback. Ask your merchant account provider to enable duplicate-checking safeguards on your account, if this service is offered.
7.
Display your return policies: Make your return, exchange and cancellation policies are made clear on your website, in your store, on receipts, in confirmation emails – and anywhere else you can think of. This discourages chargebacks and can also help you win disputes.
8.
Request signatures: One crooked customer tactic is to claim goods were never received. To discourage this, consider using signature-required delivery services from FedEx, UPS or the Postal Service. This still isn’t foolproof, but improves your odds.
9.
Challenge the chargeback: You don’t have to take chargebacks lying down. You can still salvage the sale by providing detailed information to your merchant bank documenting the transaction and all actions taken to resolve any dispute.
10.
Get bad: If chargeback woes have you at wit’s end, consider the “BadCustomer” approach. Check the BadCustomer.com database for potential chargeback risks, and warn customers you’ll report them to the site for unwarranted disputes.
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