Chargebacks: What they are & how to Deal

When you own a small business that processes credit cards, chargebacks are oftentimes just part of the deal. However, there are ways to avoid these unfortunate disputes. Here, we walk you through chargebacks––what they are, what causes them and how to prevent them from happening.

What is a Chargeback?A chargeback occurs when a customer contacts their credit card issuer to dispute the charge made on their card. Chargebacks are intended to protect the consumer from unauthorized charges; however, more times than not, the merchant is left with the mess to clean up. If an issuer deems the customers’ dispute as valid, your small business’ merchant account is debited for the charge that had already been cleared and your business loses that money––sometimes even more if the processor charges a chargeback fee.

So, What Causes Chargebacks?Here are some of the top reasons customers dispute charges:• Customer was incorrectly billed• Customer did not recognize the charge on their statement• Customer never received the item they ordered• Customer felt the item or service was not representative of what was offered• Customer suspects the charge is fraudulent

How Can I Avoid Chargebacks?To help protect your business, here are the top three ways your business can reduce your changes of credit card chargebacks.

1. Identify Signs of Fraud Learn to spot suspicious behavior such as mismatched billing and shipping information or an incorrect security code. By identifying suspicious signs before the purchase is complete, you can prevent the chargeback from happening in the first place. Additionally, merchants should ensure that their payment gateway and terminals have the most up-to-date security.

2. Train Your Employees Employees should not only be able to spot suspicious behavior, but also know how to handle both card-present and card-not-present transactions. Some topics to train your employees on this include verifying signatures, looking for skeptical transactions and acquiring signatures on sales orders and contracts.

3. Keep RecordsKeeping accurate records of customers’ authorization information, the dates and amounts of credit card transaction and receipts can protect you in the event that you do end up with a chargeback. This documentation may not prevent chargebacks from happening all together, but it could help in the instance that someone purposely attempts to take advantage of the chargeback system.

Chargebacks can be quite the headache for merchants who accept credit cards. However, merchants who know how to spot signs of fraud, train their employees and keep accurate records of all their customers’ transactions can help defend themselves in the event that a chargeback does occur.