Picture this…You sell a product to Connie Customer and she pays via credit card. Then, when Connie’s credit card bill arrives, she freaks out. “Wait a minute,” she says to herself, “this bill is for $10.23 more than I expected. And besides, I really don’t like this thing that I bought anyway.” Rather than contacting you to straighten things out, Connie contacts her credit card company, disputes the charge and asks them to reverse it.
That reversal is called a chargeback, because now the money for that transaction is reversed, charged back to you and taken out of your account. The disputed funds are then held from your business until the card issuer works things out and decides what to do. If they rule against you, those funds are returned to the cardholder. If they rule in your favor, they’ll send the disputed funds back to you.
While the ability to dispute a payment is meant to protect consumers from unauthorized transactions, it can mean big headaches for businesses, especially when chargebacks are issued in error. As you might expect, getting the disputed funds back can be a complicated and time-consuming process involving a lot of paperwork and documentation.
How can you prevent chargebacks?
There are a few typical culprits behind payment disputes. Fortunately, there are systems and processes you can put in place to prevent these common causes of chargebacks:
Fraudulent transactions – If a cardholder sees a charge from your business but never bought anything from you, it could mean fraud is at play. This usually prompts them to file a dispute.
How to prevent fraudulent credit card transactions:
- Use secure point of sale equipment to accept chip cards and contactless payments such as Apple Pay.
- Require buyers with chip cards to dip their cards rather than swipe them.
- Train employees on best practices to accept payment cards.
- Credit not received by customer – In these cases, which are also called “credit not processed,” a cardholder returns an item in expectation of a refund or account credit, but receives neither.
How to prevent this “credit not received” credit card disputes:
- Make sure you have a reliable system in place for handling returns and credits.
- Clearly explain your sales policies on your receipts and post them clearly in your store (whether that’s a brick-and-mortar location or e-commerce site). Be sure to include your return, refund or cancellation terms. Doing so makes you more likely to win payment disputes should they arise.
- Dissatisfaction with product or service – Cardholders might file a dispute if they are dissatisfied with your product or service. In the case of products, this is typically due to physical defects or an item not being as advertised. With services, the quality is more subjective and difficult to determine.
How to prevent this type of credit card dispute:
- Respond to customer service issues promptly and courteously.
- Set realistic expectations. Cardholders who receive items that are not as described have valid grounds for a payment reversal.
- Unrecognizable business name – Sometimes customers mistakenly think that a charge is fraudulent because they do not recognize the business name listed on their credit card statement. For example, say your business sells coffee and bagels and your shop is called “San Francisco Bakeshop.” However charges show up on your customers’ credit card statements from “SF Enterprises,” a company they’ve never heard of. If they do not make the connection with your business, they may suspect fraud and, in turn, file a dispute.
How to prevent this credit card disputes stemming from unrecognizable business names:
- Avoid confusion by ensuring that the name on your receipts and your customers’ statements matches the name of the business from which they made a purchase.
How does the chargeback process work?
The chargeback process can differ between payment processors. Generally speaking, a chargeback usually takes between 60 and 90 days to resolve.
At PayProTec West Coast we always keep you informed of the status of your chargeback via convenient alerts. Here’s what the process typically looks like:
Step 1: A purchase occurs. All chargebacks start with a customer making a purchase in person, in an app or online.
Step 2: Customer initiates the chargeback. After the customer receives and reviews their credit card statement, they may notice a charge that they wish to dispute. The customer then contacts their credit card company (known as the issuing bank), and asks them to investigate the charge in question.
Step 3: Issuing bank reaches out to the merchant’s bank. Once a customer initiates the chargeback process, the customer’s bank reaches out to the merchant’s bank, asking it to provide evidence to refute the claim. This can include things like invoices, receipts, proof of delivery or anything else the merchant has to prove that the purchase was valid.
Step 4: Decision is made. After reviewing all the proof provided by the merchant’s bank, the cardholder’s bank must decide whether or not the purchase was actually valid.
Step 5: Customer is informed. If the acquiring bank determines the purchase was not valid, then the cardholder (i.e. your customer) receives a refund for the transaction.
If the acquiring bank determines that the purchase was valid, then at this point the customer must accept the proof provided by the acquiring bank and either pay for the goods or continue to dispute the purchase and begin a process known as arbitration.
Step 6: Arbitration. If the issuing bank and merchant bank fail to come to an agreement, then as a last resort they will enter what’s called the arbitration process. The arbitration process is governed by the issuing credit card company, and its decision is absolutely final.
During the arbitration process the credit card company (Visa, American Express, etc.) reviews the proof provided by the parties and has the last word on who must pay for the charges. If a merchant loses the arbitration process, they may choose to seek recourse and repayment in a court of law, at their own expense.
As a merchant, what’s the best way for you to fight chargebacks once they occur?
The answer here depends on who you have chosen to handle your merchant account. One of the many benefits of working with PayProTec West Coast is that if you, as one of our customers, are hit with a chargeback, I will personally help you fight it. I’ll guide you through the documentation process, make phone calls on your behalf and do everything in my power to help you get your money back.
When you work with the other guys, of course, you’re stuck navigating it all on your own.