Avoiding Chargebacks: A How-to Guide

A chargeback is what happens when a customer disputes a debit or credit card charge from your company, and asks their card issuer to reverse it.

While chargebacks (or reversals) are meant to protect buyers against fraudulent purchases, a cardholder’s bank may approve a reversal for various reasons. No matter what prompts them, however, the costs to your business can quickly add up.

Although you have the right to dispute chargebacks forced on your organization (especially if you think a mistake has been made), taking steps to prevent reversals before they occur can save time and money.

In this quick how-to guide, we’ll outline some key ways your business can avoid payment card chargebacks.

Why do chargebacks happen?

While the return of funds to a cardholder is usually the result of a purchase made without their permission or knowledge, chargebacks may also be initiated for:

  • Products or services that didn’t live up to a buyer’s expectations (e.g., parts were broken or missing, services weren’t as advertised)
  • Goods that didn’t show up, or services that were never delivered
  • Purchases that were charged for more than once
  • Goods that were returned, but never refunded
  • Transactions for which buyers lack the appropriate credit or funds

Every time a customer successfully disputes a debit or credit charge, your account isn’t just debited the full amount of the sale, you also face chargeback fees, additional overhead, and the loss of your original payment card processing fees.

Following these 5 steps will help your business avoid common chargebacks.

1. Set your sales process up for success

The more attention you pay to your sales process upfront, the less likely you are to experience customer chargebacks.

  • Avoid misleading ads and marketing statements
  • Build quality controls into your shipping, receiving, and inventory procedures
  • Establish and maintain a hassle-free return policy

You can also encourage disgruntled buyers to reach out before they file a reversal request by ensuring your phone number appears alongside your charges on customer credit card statements.

2. Document your purchase transactions

Proof of shipment and receipt of goods can go a long way toward pre-empting and disproving customer claims that they didn’t get what they paid for.

  • Use mobile or store-based POS software to tie transactions to buyer accounts
  • Take advantage of delivery tracking services for tangible goods
  • Make sure customers sign off on services rendered by your business

3. Automate your customer orders

Removing manual data entry from your order and payment procedures can reduce the clerical errors that lead to double billing, charging products or services to the wrong card – and the chargeback requests that accompany these mistakes.

4. Establish a consistent return process

Set up an efficient, repeatable process to manage product returns to ensure the buyer refunds and credits you owe actually get issued, and that they get applied faster. Not only can you avoid more chargebacks this way, you’ll end up with happier customers who’ll be more likely to purchase from your company again.

5. Do your due diligence

It’s your responsibility to confirm that a customer’s personal and credit information is correct and up to date.

  • Collect buyer contact information, signatures, and credit card CCVs whenever it’s appropriate
  • Set up 2-step verification for customer account access, and use bank-verified payment options
  • Always run credit card authorizations, and know when to contact buyers directly to confirm a questionable purchase

Fraud does happen.

But many reversals are simply the result of customers forgetting about or failing to recognize their own purchases.

One of the easiest ways to avoid chargebacks is by making sure the name of your business matches the name next to your charges on customer credit card statements.

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