One of the most challenging parts of being a merchant is knowing how to handle cash flow and payment collections efficiently to ensure minimal disputes occur.
Unfortunately, every business has to deal with its share of complications when it comes to accepting payments from customers. Included in these complications are chargebacks which can majorly disrupt your revenue if not properly managed and addressed.
What are chargebacks?
Chargebacks occur when customers dispute a transaction which then leads to the charge amount being returned to the customer (back on the card used) and the business account being debited.
The video below goes some quick tips on over what chargebacks mean for merchants:
Typically, there are three types of chargebacks merchants should be aware of:
- Friendly fraud chargebacks: Friendly fraud occurs when a cardholder makes a purchase and files an illegitimate chargeback with their card company, claiming they didn’t initiate the transaction.
- True fraud chargebacks: True fraud occurs when a stolen card or account is used to purchase products or services without the cardholder’s permission. This results in the cardholder filing a charge for unauthorized use of his/her payment information.
- Merchant error chargebacks: Merchant error chargebacks are legitimate claims that can stem from issues involving technical errors, poor customer service, unwanted recurring payments, and more.
While chargebacks can be applied to both credit cards and debit cards for various reasons like fraud and poor product quality, merchants can fight chargebacks if they feel the reason is invalid or misrepresented.
That being said, businesses should be careful about what actions they take to fight chargebacks, as many common mistakes are made when handling these disputes.
The top 10 mistakes merchants make when fighting chargebacks include…
- Not communicating with customers
- Little or no knowledge of chargeback reason codes
- Failing to fight chargebacks altogether
- Wasting time
- Ignoring fraud trends and red flags
- Expending costs and valuable resources
- Only focusing on winning the dispute
- Not working with your processor
- Failing to collect chargeback metrics
- Neglecting fraud prevention tools
1. Not communicating with customers
Poor communication with consumers is one of the biggest mistakes a business can make when trying to prevent, manage, and reduce chargebacks.
Merchants that clearly communicate refund policies with their customers and have easily accessible information on their websites can mitigate or avoid chargebacks altogether. Providing thorough product descriptions and pictures, transaction statements, order details, and more, can also help you fight chargebacks.
Additionally, businesses that provide high-quality and responsive customer service can prevent chargebacks. A strong customer service team that addresses product and service issues, payment errors, and other related issues, in a timely and respectful manner, is essential in tackling these concerns before they turn into chargebacks.
If all else fails and your business is faced with a chargeback, you have 7-10 days to dispute it. During that time period, you can start a dialogue with the customer to find out the reasoning behind the chargeback to see if it can be resolved and undone.
2. Little or no knowledge of chargeback reason codes
To successfully fight a chargeback, it’s beneficial for merchants to have sufficient knowledge of, and be up-to-date on, chargeback reason codes.
Reason codes for chargebacks work as a classification system established by the card networks that consists of the chargeback types, chargeback reasons, and the required evidence needed to dispute the chargeback. This information is important for merchants to understand to build a strong defense against these claims during the representment process.
Chargeback reason codes often vary by the card network. Therefore, businesses should conduct routine research to ensure they’re up-to-date on the newest chargeback reason codes and representment requirements.
3. Failing to fight chargebacks altogether
Merchants that fail to investigate or fight chargeback claims are doing their business a great disservice.
While each chargeback is different and not all can be disputed, your business should thoroughly review every claim to make sure it’s accurate. If the chargeback is illegitimate, you’ll need to decide if it’s financially advantageous to fight it.
Chargeback disputes can be costly and in some cases, you may spend more money fighting the chargeback than you’ll get back from the original transaction. Therefore, it’s important to carefully evaluate each case to determine if winning a dispute will yield more returns.
Nonetheless, businesses should respond to every chargeback and pursue a chargeback representment if the win will guarantee a significant revenue.
4. Wasting time
Time is one of the most valuable resources when running a successful business, and fighting chargebacks is no different.
While it’s highly recommended to investigate chargebacks to see if they’re legitimate and worth fighting, merchants should be cautious of not spending too much time on these claims.
Before committing any time or resources to fight chargebacks, merchants should check if their acquiring bank has already initiated an automatic representment. More often than not, acquirers will handle this process on your behalf.
Businesses can save time by knowing which chargebacks are addressed by acquirers, as well as implementing an efficient chargeback flow system for claims they’re responsible for.
Chargeback flow systems should help you outline:
- How to detect a potential chargeback
- Step-by-step instructions to address chargebacks
- Representment guidelines
Having an efficient plan in place to fight chargebacks will help your business focus its time and resources on more pressing, high-priority tasks.
5. Ignoring fraud trends and red flags
Ignoring red flags involving your customers’ payments and chargebacks or trends involving fraud can result in a loss in revenue and legal ramifications for your business.
Therefore, it’s important to track payments, keep detailed transaction records, and actively monitor unusual activity and chargeback fraud trends. Merchants can achieve this by routinely reviewing payment analytics to identify any patterns — upticks in dispute frequency or commonly reported reasons— and stay up-to-date on chargeback reason codes.
By taking steps to identify red flags and chargeback fraud patterns early on, businesses can adjust their fraud prevention tactics and solutions accordingly to fight chargebacks and save more money.