Merchant success relies heavily on the clearing and the settlement of payments made for goods or services offered by their business. As most of today’s customers pay via payment card, settlements need to clear quickly so the merchant can easily focus on the next transaction and increase revenue streams. Unfortunately, chargebacks interrupt this revenue stream and the rise to profit is left immobile, or, even worse, declines. There are multiple reasons why a chargeback can occur and identifying a way to prevent them is the ideal solution. We understand that this may not always be possible so understanding what to do in response is the best option to minimize the effects a chargeback has on your business.

 

What is a Chargeback? 

A chargeback is a forced reversal of a credit card transaction initiated by the bank or financial institution at the request of the card-holding customer. The function is designed to protect consumers from dubious businesses that fail to deliver the purchased product or service.

 

The 5 most common types of chargebacks are:

1. Cardholder does not recognize

2. Fraud

3. Product/Service received not as described

4. Cardholder did not authorize

5. No Refund/Cancellation of Recurring Billing

For example, if a customer orders a product from a business but never receives it, he or she may request a chargeback with the bank or financial institution that manages their credit card. The bank will then investigate the customer's claim, and if the request is deemed valid, the bank will reverse the transaction by deducting the appropriate amount from the business's bank account. 

 

Unfortunately, chargebacks can cost your small business serious money. Banks and financial institutions charge merchants a fee of about $20 to $50 for each chargeback, and that doesn't even account for the lost revenue associated with the transaction reversal. 

 

Globally, statistics show that chargebacks cost businesses $20 billion to $40 billion each year. There are ways to protect your small business from this otherwise costly expense. Below are our tips on protecting your business from chargebacks.  

 

1.  Create a Transparent Return Policy 

Your small business' return policy, or lack thereof, can influence the number of chargebacks it encounters. If a customer doesn't know how to return a purchased product, for instance, he or she may request a chargeback simply because it's easy to do. Whether your small business operates online, locally or both, create an unambiguous and transparent return policy that details the exact steps customers must take to return a product. The policy should include a time limit during which customers can return the product, how to return the product, and also account for the cost of return shipping and restocking. 

 

2.  Track Product Shipments 

If your small business ships products directly to its customers, be sure to track those shipments. Tracking allows you to see the product's location during transit and know when it reaches its destination. If the customer requests a chargeback on the claim that he or she never received the product, you can pull up the product's tracking information on the courier's website. If the tracking information shows that the product already got delivered, your business can avoid a chargeback. 

 

3.  Offer Excellent Customer Service 

Preventing chargebacks begins with offering excellent customer service. A customer who has an issue with their purchase (e.g., hasn't received the product, received the wrong thing, got overcharged, etc.) will probably try to resolve it directly with your business. Make sure you clearly display your business contact information (phone, email, live chat etc.) for customers to contact the business and resolve their concern(s). But if you ignore their emails or phone calls, the customer may request a chargeback with the bank. 

 

4.  Use a Recognizable Business Name in Billing Descriptor 

When setting up a merchant account for your small business, provide your bank with a recognizable business name for the billing descriptor. Your operating business name (DBA) is preferable. Alternatively, you can use your corporation name.

This information displayed on credit card bills about your business should include your business name and customer service phone number. When a customer doesn't recognize a transaction on the statement, they may request a chargeback, believing that someone stole their credit card and used it to make the purchase. Therefore, you must use a recognizable business name in your merchant account's billing descriptor. 

If a parent company owns your business, don't use its name in your merchant account's billing descriptor. Instead, use your business's name, the one with which customers are familiar. Banks don't require companies to use their legal name in the billing descriptor. On the contrary, they encourage businesses to use a recognizable name to protect against wrongful chargebacks. 

 

5.  Verify Customers' Addresses With AVS or 3DS

 

Accounting for more than 80 percent of all chargebacks, "friendly fraud" occurs when a customer makes a purchase and proceeds to request a chargeback after receiving the product. Despite its name, however, there's nothing friendly about a customer trying to scam your business by claiming their order never arrived. 

To lower your business's risk of friendly-fraud chargebacks, verify customers' addresses with the Address Verification System (AVS) or 3DS (3D Secure). All major credit card companies, including Mastercard, Discover, Visa, and American Express, offer this fraud-fighting tool to businesses. AVS works by cross-referencing the billing address provided by the customer to the customer's address stored on file by the credit card company. The customer's transaction will only go through if these two addresses match. 

3-D Secure is a security protocol technology that is designed to prevent fraud in online and debit card transactions. With 3-D Secure, additional steps are added to the credit card transaction in order to authenticate the credit card holder’s identity. The cardholder is given an online one-time PIN, used to authenticate the customer during the transaction. If the cardholder passes or fails, the response is then passed to the cardholder and the payment will be approved or denied. 

 

6.  Respond to Chargeback Claims Promptly 

Time is of the essence when dealing with chargeback claims. Customers typically have 120 days from the date of purchase to request a chargeback with their bank or financial institution. As a business owner, however, you usually have 45 days to respond to a claim. Failure to do so will result in a favorable outcome for the customer. 

You can't protect your small business from all chargebacks. As your company grows and begins selling more products or services, some customers will inevitably request one. By taking the proactive measures described here, you can reduce the number of chargebacks your business encounters. 

 

 

Here at TCB Pay, we will give you all the tools to manage your chargebacks quickly and efficiently. If you have any questions regarding our services, visit our website or contact us at 866-444-8585, info@tcbpay.com. We look forward speaking with you!