How to Protect Your Business from Chargebacks

By Team Zeller

14.04.2021 Finances

How to Protect Your Business from Chargebacks

Chargebacks can put a dent in your profits and significantly impact your carefully considered margins. 

A chargeback is a form of customer protection that allows a customer to file a dispute against a merchant, with the aim of having a charge returned to their card. In theory, chargebacks are a way to ensure customers are protected against dishonest or fraudulent businesses. However, not all chargebacks are genuine.

It’s important to understand when and why a customer may seek a chargeback, as well as how to protect your business against them.

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Winning a chargeback dispute

Winning a chargeback dispute requires knowledge and preparation.

Chargebacks explained, simply

A chargeback, in simplest terms, is a type of payment dispute that results in a refund. However, instead of your business providing a refund directly to the customer, the customer’s bank reverses the charge, removing money from your bank account and placing it back with the customer. That means a customer can get money back without your agreement, or even involvement. 

When a customer requests a chargeback from their bank, the bank investigates the issue by contacting the vendor business. If the business is unable to provide adequate evidence that the product or service was in fact provided as promised, the bank will reverse the charge on the customer’s credit card. 

Chargebacks can be a source of anxiety for business owners. When hit with a chargeback, a business not only loses the value of the transaction, but may also be subject to fees and penalties. Dealing with chargebacks can be time-consuming, but if you understand why a chargeback may be requested you’ll be in a position to better protect your business from them.  

There are two types of chargebacks: fraud and service. 

Fraud chargebacks

Your business can be hit with a fraud chargeback if a customer uses a credit card that is not theirs. The card holder can contact their bank and explain they did not authorise the payment at your business.

This is one of the reasons why you should never allow a customer to enter their card number manually – you’ll be left with nothing to prove it really was the card holder that made the transaction, such a signed receipt or other documentation. 

Service chargebacks 

Service chargebacks occur when a customer makes a payment using their own credit card and then requests a chargeback. This could be for any number of reasons – some honest, and some dishonest. 

As much as we’d like to believe that everyone is kind and honest, sadly, you have to be prepared for the worst. You have a responsibility to your staff, your business, and yourself to protect against chargebacks. After all, the whole purpose of operating a business is to keep the money your customers pay you – not give it right back. 

Protecting your business from service chargebacks

To best protect yourself, create a process for documenting evidence that your agreed upon service or product was provided. Without sufficient evidence, banks are almost always going to side with the customers – whether the chargeback is honest or not.

Below are the most common reasons for a service chargeback, as well as some tips to mitigate the risk of a customer disputing a payment. 

1. Unmet expectations

If a customer ordered what looked like a white t-shirt, but when they received their order it turned out to be grey, they could request a chargeback. What the customer ordered did not match what was delivered. This is a very common reason for chargebacks. 

Business can reduce the risk of being hit with these types of chargeback requests by:

  • ensuring all product descriptions, whether on a website or in store, are accurate;
  • using photography that clearly and accurately shows the product, including fabric swatches; and
  • publishing accurate size guides, if selling online.

2. Onerous or unclear returns policy

No business that sells goods welcomes returns. However, making it difficult for a customer to request a return won’t help. Studies show that most customers who file chargebacks do so for convenience; it’s easier than contacting the merchant and going through a complex return process. 

Avoid the risk of this occurring by making your returns policy clear and straightforward. It should be visible on your receipt, business website and in store, if possible. You should also make it easy for customers to contact your business by publishing a customer service phone line or email address in a visible section of your website, such as the footer. 

3. An unrecognisable business name

When a customer sees an unfamiliar name on their credit card statement, alarm bells might go off. For example, if a customer purchased a new dog collar at your store, Puppy Shack, but you chose to name your business account “PuSh”, they may not recognise that these transactions are one and the same. They may call their bank to initiate a chargeback, and say they did not authorise the transaction. 

For this reason,  it’s important to have clear and consistent branding across your business name, website domain, all of your receipts, EFTPOS terminals, and anywhere else your business name appears. 

4. Inefficient service or delivery

If you are shipping a product to a customer and it takes much longer to receive it than anticipated, they may request a chargeback rather than bother with a refund. If you schedule a time to provide a service for a customer, but accidentally double book yourself, the customer may pursue a chargeback rather than reschedule. 

The point is, many mistakes that lead to chargebacks can be avoided with efficiency and organisation. If you need more hands and eyes to make that happen, expand your staff or put processes in place for double checking your or your employee’s work. Your business’s bottom line will suffer if you get hit with chargebacks frequently.

5. Problems with delivery

A customer can request a chargeback by claiming that the product they purchased was never delivered, only delivered in part, or that it arrived damaged.

To minimise the risk of this occurring, request a signature upon delivery. A customer will be much less likely to initiate a chargeback if you have signed proof that the product was delivered, as expected.  

Tips for disputing chargebacks

If someone requests a chargeback from your business, your bank will notify you. From there, you’ll have the option to challenge the chargeback. This is called a chargeback dispute.

Without sufficient evidence, banks are almost always going to side with the customers.

To best protect your business, create a process for documenting evidence that your agreed upon service or product was provided. The types of documentation that will help you dispute a chargeback include:

  • a photo of your goods in their packaging, ready for sending;
  • signed contracts;
  • signed terms and conditions; 
  • signed proof of delivery;
  • clear, itemised receipts; and
  • a tax invoice showing the item description and cardholder details.

Generally, a chargeback dispute takes between 30 to 45 days to be resolved. However, in complex cases, it can take 90 to 120 days to resolve a chargeback dispute. Your best bet to speed up the process is to ensure you have as much documentation on hand as possible.

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