Whether you are a new or established business, operate locally or globally, or have a high risk merchant account or low risk merchant account, chargeback mitigation is essential to protect yourself from cash flow disruption, potential loss of revenue, and fraud.
All business owners understand that there will be times when clients request a refund. For businesses that operate using cash only, the process is simple – hand over the cash to the customer and log the refund. However, e-commerce merchants and merchants who accept credit card payments need to deal with the risk of chargebacks.
Chargebacks occur when a bank processes a refund request from a client who has paid for goods or services by credit card. The difference between chargeback and refunds is that rather than the refund being initiated when a customer returns a product, it is instead initiated by the credit card issuer. In these cases, it is possible that you could lose a sale, merchandise, and be subject to chargeback fees, costing your business a lot of time and money.
Too many chargebacks can not only harm your business financially but also cost your business its merchant account and credit card processing capabilities. This is why it is essential that all business owners understand why chargeback prevention is incredibly important.
Why Do Chargebacks Occur?
Chargebacks are the result of a client or customer contacting their credit card issuer directly to dispute a charge from your business on their statement. Due to the close association between chargebacks and fraud, merchant account providers will cease the operation of businesses who attract a high number of chargebacks.
There are many reasons why a chargeback may occur including:
- A card-not-present transaction was unauthorized by the cardholder and was fraudulent
- The client doesn't recognize your businesses name on their statement or forgot they made a purchase from your company
- The client didn't receive the goods or services paid for or the item purchased arrived damaged
- The description of the product or service was inaccurate or misleading and the client is not happy with their purchase
- The client was charged more than they expected or the amount on their statement differs to the price of the sale
The process of chargebacks has led to an increasing number of fraudulent chargeback claims over the past few years. People attempt to receive a refund and keep items they have purchased fraudulently. For this reason, it is essential for merchants to be extremely vigilant about chargeback fraud.
Preventing & Avoiding Chargebacks
When it comes to chargebacks, a refund is always a better solution. Merchant account providers have a much higher tolerance for refunds than chargebacks and dealing directly with a client is far better than trying to convince a credit card issuer of the legitimacy of a sale.
With a chargeback alerts system, you will receive a notification when a chargeback has been issued against your business. Once alerted, you have three days to contact the customer and work out a resolution before the chargeback is issued. This presents an opportunity to avoid needless chargebacks that occur due to a client's confusion or in the worst case scenario allows you to issue the client a refund, avoiding fees and black marks against your business.
Of course, preventing chargebacks in the first place is very achievable with some due diligence when processing credit card transactions and sales. To help prevent chargebacks you can:
- Confirm customer orders and shipments via email to maintain communication
- Send orders on time with an accurate delivery date
- Use signed-for delivery so that you have proof your client received their package
- Use chargeback alerts to screen for potentially fraudulent activity
- Use a clear and accurate billing descriptor so clients can easily identify you on their statement
How EthosPay Can Help Your Reduce Chargebacks
We have developed an advanced chargeback alerts system which notifies you immediately when a chargeback has been issued. This provides you with the greatest length of time to solve the dispute before the chargeback occurs.
We also provide extensive chargeback prevention help and support to help you dispute fraudulent chargebacks and keep your business profit margins healthy. EthosPay is dedicated to educating merchants about chargebacks, how to avoid them, strategies on mitigation, and much more. See our guides for more information.