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Chargebacks can cause a lot of trouble for merchants and cardholders alike. If you’re in business for yourself, chargebacks may jeopardize your livelihood. But what is a chargeback? Why do they occur? And how can you prevent them from happening to your business? This article will cover the basics of chargebacks: what they are, why they happen, and how to avoid them in three simple steps.
A chargeback occurs when a credit cardholder contacts their issuing bank or company to dispute a transaction made with their credit card. The cardholder usually claims that they did not authorize or receive the marketing and disputes it as a fraudulent charge. The issuing bank will then freeze the funds in question temporarily while investigating both sides of the claim.
Chargebacks can be reversed by either providing evidence to support your case or reaching a settlement with the cardholder and the issuing bank. Settling is often more practical than winning, because there’s no reason for you to wait for your money if it just comes back anyway.
Why Do Chargebacks Occur?
The number one cause of chargebacks is friendly fraud. A friend of yours asks if he could use your card number to make an online purchase, assuring you that he will reimburse you. Your friend makes the purchase but fails to keep his promise to pay you back. There are other more common causes of chargebacks, including:
§ Customer didn’t recognize the transaction (aka billing error)
§ Service or product not delivered as promised
§ Customer believes they were charged twice for the same thing (double-billed)
If your business is accepting credit cards, then it’s nearly impossible that you won’t experience a chargeback at some point in time. That said, there are ways that you can reduce how frequently chargebacks occur; you can also incorporate tools regarding chargeback fraud protection for merchants and what kind of impact they have on your business.
How Can You Prevent Chargebacks?
There are various ways merchants can prevent chargebacks from wiping out their business. The first step is relatively straightforward: accept more credit cards, including all major brands. Once prevention is incorporated, merchants will know how to dispute credit card chargebacks the moment it occurs.
Next, make sure your website address is visible on the page where customers are entering their information. Increasing your visibility means that Dan will less likely input the wrong numbers into the payment form.
You should also employ a reputable company to process your payments because chargebacks caused by fraudulent transactions are more accessible for these companies to dispute than merchants alone. Lastly, you might consider adding an option that allows cardholders to add a note when they place orders or edit their account information in your system. This way, it will become easier for you to prevent such incidents from occurring.
Chargebacks are not only a massive expense for retailers, but they can also be detrimental to your business relationship with your customers. As you grow and expand the number of transactions you process, it’s essential to implement strategies that will minimize chargeback risk in your operation so you can continue operating smoothly.
