What is a Chargeback and How Can you Reduce Chargebacks?
In simple words, a chargeback happens when a customer disputes a credit card charge with their bank and instructs the bank to reverse the credit card charge. The customer disputes a credit card transaction and the originating bank voids the credit card transaction and secures a refund for the consumer.
A chargeback notice is then sent to the merchant that charged the consumer’s credit card to allow them to offer an explanation or to validate the charge. Upon successful validation, the merchant may get the credit card charge reinstated. There is a chargeback fee charged to merchants if they are unable to validate or explain the credit card charge.
The chargeback process is inclined toward the safety of a cardholder’s money. A customer may dispute charges to their credit card for delayed delivery or upon receiving damaged or substandard goods, for incorrect billing, or for an unauthorized purchase on their credit card. However, there are also instances where fraud, sometimes called friendly fraud, can be the motivating factor in chargebacks.
The best way to reduce chargebacks is to ensure complete customer satisfaction and solid proof(contract) of a sale.
Here are 7 Tips to Avoid Chargebacks.
How To Avoid Chargebacks
Small businesses often have to bear the brunt of chargebacks, which can be really costly to endure. However, there are ways to protect yourself from unfair chargebacks. The best approach to reducing your exposure to chargebacks is to closely monitor your strategy every 6 months or quarterly.
1. Processor Protocol
Your credit card processor may permit processing of card-not-present transactions, including those made over the phone or online. In this regard, it may help to capture additional customer information to ensure a secure transaction, including a digital signature of the customer, their IP address, or social network profiles. There are card processors that require further identity confirmation through MasterCard SecureCode or services like Verified by Visa.
2. Clear payment descriptor
A majority of disputes have to do with unclear payment descriptors. It is important that the payment descriptor clearly reflects the merchant name and additional identifying details on the credit card statement of the customer when they buy from you. Customers recognize brands by their names and logos. Avoid listing a different name than what the customer can recognize you with.
3. Sign a contract
One of the most important things to protect yourself and reduce chargebacks is to get customers’ authorization in writing, asking customers to sign a contract that clearly details your services. The signed contract clearly says that the signing person authorizes the billing on their cards. The contract can be submitted via email, fax, digitally signed or signed with a fingerprint via a smart app.
4. Prompt customer service
Try to deal with chargebacks with prompt customer service. For example, if a customer disputes a charge, your credit card processor will issue a chargeback notification. It will help to immediately address chargebacks. Get in touch with customers that continue to express dissatisfaction to find out the exact cause of their frustration. It will help reduce chargebacks and also help you fix problems in your sales channels that are causing chargebacks.
5. Identify warning signs of fraud
Businesses may lose thousands of dollars in chargebacks for fraudulent transactions. In order to deal with such frustrating situations, developing a chargeback protocol could help detect signs of fraud. Moving shopping cart and payment gateways to more secure systems is a crucial part of the process. Not only this, you can then easily identify suspicious details and other signs of fraudulent activity reported.
If you notice something fishy with an order, making immediate queries to confirm the customer’s legitimacy can help you confirm or reject sales. You and your employees need to be alert and must know how to deal with all types of transactions, including card-present and card-not-present ones.
Learning chargeback and fraud prevention techniques can help you reduce chargebacks significantly.
6. Keep good records
It is important to keep accurate records of credit card transaction details, including amount, date, and authorization information. The paperwork can help you in situations where a customer is unfairly trying to manipulate the chargeback system.
7. Fight back
A chargeback isn’t the best thing to happen to a merchant, but if you consider fighting one, with a hope that you could win the case, you may choose to fight back. You may consider hiring professionals for the task if it isn’t something that you can handle on your own.
Each chargeback could cost a small business dearly. It could even hurt your relationship with your merchant account provider, so it will help to take immediate steps to reduce chargebacks. If the nature of your business means that you always will have lots of chargebacks, then you may want to look at how you Could Reduce Payment Processing Costs by Using eChecks (ACH).
Contact Us for more information on Credit Card Processing, or eChecks and ACH Transactions. Or take us up on our FREE Merchant Account Analysis offer. We’ll analyze your merchant account rates and let you know how to Save! If you are ready, you may be able to Switch and Save!