Understanding and managing chargebacks provide customers with easy means to dispute suspicious transactions and avoid fraud. Contrarily, chargebacks are a nightmare for businesses as they can put their revenue at risk. Thus, for merchants and businesspeople, a chargeback is a sensitive topic, but it is something they need to understand.
“Chargebacks play a vital role in customer economy by mediating unavoidable disputes that sometimes come in between businesses and their customers. However, chargebacks are notorious for giving merchants headaches as they are difficult to manage and understand.” shared Shane Perry, Small business loan specialist from Max Funding.
Read on to know more about the basics of chargebacks and how to prevent them in the future.
What Are Chargebacks?
Chargebacks, or payment disputes, occur when a customer or cardholder questions a transaction and requests their card-issuing bank to reverse it. The power to dispute a payment exists to protect customers from unauthorised transactions. It is, unfortunately, a big hassle to businesses, primarily when they are issued in error.
The disputed funds are held from the merchant until the card issuer finishes reviewing the transaction and reaches a decision. If it goes in your favour, the bank will return the disputed funds to you. If it rules against you, the bank will give those funds back to the cardholder.
The few common causes of chargebacks are delivery, shipping, pricing issues, dissatisfaction with service or product, fraudulent transactions, and merchant error.
How Do Chargebacks Work?
The process differs depending on the payment provider. Typically, a customer requests a chargeback, and the card issuer will validate it. The bank will take the funds from the merchant and return them to the customer is approved.
Here is a detailed summary of the process:
- The customer makes a purchase – Customers may complete the purchase in person, online or via an app. Then, the payment is processed through a credit card transaction.
- Customer requests for a chargeback – The customer contacts the bank to dispute the charge. The bank will issue an investigation, starting with the transaction data, including timestamps, IP addresses, and location.
- Bank reaches out to the merchant – The issuing bank will contact the merchant and ask for evidence to refute the chargeback. You may have to present confirmation or follow-up emails, shipping tracking details, automated invoices, or another form of proof.
- Merchant disputes or accepts the chargeback – You may either accept or dispute. Accepting means that you will return the funds. The bank will take 10-90 days to investigate and decide if you dispute it.
- Decision – The bank will decide whether to approve or deny the chargeback.
How To Prevent Chargebacks?
There are simple ways to prevent chargebacks.
- Avoid any miscommunication with your customers.
- Educate your customers about your return and cancellation policies.
- Adhere to all security protocols for card acceptance.
- Ship all orders on time.
- Make returns and refunds easy.
Handle Chargebacks Effectively
Handling chargeback is probably one of the most stressful aspects of being a merchant. Fortunately, there are various ways to reduce and prevent them. By understanding the ins and outs of chargebacks, you will be able to fight and respond to them more effectively.