Understanding Chargebacks

Many would agree that to be competitive in today’s market, a business needs the ability to accept credit card payments online. By doing this, it can help increase your revenue, customer base and improve productivity. However, accepting credit cards also comes with one important aspect that every business needs to be aware of – chargebacks.

Chargebacks occur when a customer files a dispute and asks their credit card company to reverse a transaction. A customer may file a dispute for the following reasons:

• Technical: Expired authorization, non-sufficient funds, or bank processing error.
• Clerical: Duplicate billing, incorrect amount billed, or refund never issued.
• Quality: Consumer claims to have never received the good as promised at the time of purchase.
• Fraud: Consumer claims they did not authorize the purchase or identity theft.

[source: https://en.wikipedia.org/wiki/Chargeback#Reason_codes]

Furthermore, ignoring chargebacks can be costly for your business, and in worst-case scenario, they can hold up funds. So, how can your business avoid these? There is no easy answer, but there are several things you can do to help prevent disputes and chargebacks:

Provide Contact Information
It is critical to be able to communicate with your customers to ensure a smooth processing of purchases. By providing an email address or phone number, a customer can contact you directly about the issue first without initiating a chargeback.

Respond Quickly
If you are notified of a chargeback, responding quickly can be your business’ greatest tool. There is a certain time limit in each step of the chargeback cycle. If your business does not respond by the date requested, most banks will process the chargeback automatically. This results in your business losing an entire sale, a chargeback fee, and possible additional penalties.

Have a Clear Return Policy
To help prevent chargebacks and disputes, make sure your return and refund policies are clearly stated and easy to understand on your website. It can work to your business’ disadvantage if a customer claims they could not find your return or refund policies.

Prevent Unauthorized Transactions
Some customers may dispute a charge when they believe a purchase was made using their card without permission. In some cases, the buyer may have forgotten they made the purchase or that an authorized family member used the account to make the purchase. However, in other cases, this may be an indication of fraud. The best way to avoid this is to work to prevent fraudulent charges in the first place. A way to do this is to use a card verification system which will help to ensure that the card is physically with customer and not just a stolen one.

Ultimately, chargebacks are just another cost of doing business, but too many can actually cost your business the ability to process credit cards. If you respond to them correctly and prepare yourself appropriately, your business can keep the number of chargebacks to a minimum.

If managing chargebacks sound like too much of a headache for your business, let us handle them for you! BMT Micro manages refunds, charges, and chargebacks for our customers. Also, our state-of-the-art fraud detection system automatically screens orders and puts questionable orders through a manual approval process. We have a reliable, cost-effective solution that is flexible enough to meet your online business needs now and well into the future. If you have any questions or if you are interested in learning more about our offerings please contact our vendor services at vendors@bmtmicro.com.