Understanding Chargebacks
November 15, 2008
A chargeback happens when a customer contacts his or her credit card-issuing bank and requests for a refund for a particular purchase that they made through their credit card. The reasons for chargebacks can vary greatly, but most are usually a result of dissatisfaction in the transaction.
The customer might or might not have informed the merchant about solving the situation before making contact with their issuing bank; they might even be making up the whole story. Unfortunately for merchants, it is their responsibility to ensure smooth transactions and customer satisfaction. Failure to do this can lead to chargeback.
Most common causes of a chargeback:
- Fraudulent transactions. Most chargebacks result from fraudulent transactions wherein the credit card was used without the proper authorization or the consent from the cardholder (i.e. due to theft or loss of card).
- Buyer-seller disputes. Chargebacks also can occur as a result of the buyer’s dissatisfaction on the product. When the buyer does not get the expected product quality, he or she can cancel the order anytime and apply for chargeback. This kind of dispute usually happens when the customer receives a defective item, an item different from what was agreed upon, or worse, never arrived at all.
- Technical problems. These involve unexpected technical complications between the issuing bank and you, the merchant. Common problems include being charged the wrong amount, being billed twice for the same transaction, as well as authorization problems (transaction was declined by issuing bank but customer was still charged) may be applicable for chargeback.
Avoiding Chargeback
Much too often however, chargeback is used by fraudulent users who take advantage of this credit card feature to get their money back without a valid reason. These are the types that merchant should avoid at all times. To do so, merchants must ensure that the cardholder would not have any reason whatsoever to make a dispute. Here are a few tips to minimize the possibility of chargebacks in your successful transactions:
- When putting up your business, make sure that you use a clear Doing Business As or DBA name that customers will easily recognize. Vague company names that fail to accurately describe what you do might either not sell, or confuse your customers when they review the billing statement sent to them at the end of the month. Unrecognized DBA names reflected on billing statements is a very common cause of chargebacks.
- Put your contact number on your customers’ billing statements. If your DBA is unrecognizable, they can call you up immediately to check who you are and what the charge was about.
- If chargeback is requested and a retrieval request was sent to you, reply to it at once. You are only given limited time to resolve any chargeback so that if you pass up on this time, you will forfeit your chance to counter the chargeback. In case the issuing bank still has more requests or questions, there will still be enough time to get those important information from you.
- Do not, at all times, accept expired credit cards.
- Get full authorization for each sale. If the transaction is declined, never accept them or split them into small amounts.
- Always make sure that the quality of the items you sell is standard and will meet customer expectations. Work closely with your customer so that you can establish a mutual buyer-seller relationship and a satisfactory solution to potential problems.
- If you get unusually large or suspicious orders, always double check to see whether the transaction is legitimate. Verify the customer’s address, and check the customer’s name, phone number and address with the issuing bank. Also, try to use the anti-fraud services being provided by the processing bank such as AVS and CVV2.
- Always get a signed proof of delivery. Make sure that you will be able to show a shipping tracer log which proves that the customer received the goods ordered.
- Only charge the client’s account when the goods have been shipped. If there are delivery delays, do not process the charge just yet.
- Be careful about high-amount orders that are requested to be sent immediately (the following day).
- Make sure that you provide accurate images and descriptions of your products in your website. You should tell your customers exactly what to expect to prevent dissatisfied customers.
Merchants are at the losing end when chargebacks are concerned. But avoiding these instances is possible. It only takes proper caution and doing what you are set out to do: make your customers happy with each sale.