Customer chargebacks can give customers peace of mind when buying from a business with which they have no history, but they present plenty of costs to merchants — including possible fees — and lost revenue. In fact, a business with an inordinate amount of chargebacks could have challenges finding banks and merchant services providers who will work with them in the future.
While you cannot eliminate every potential chargeback, you can proactively minimize by understanding what causes them. Here are some of the most common reasons customers request chargebacks.
Chargeback reason #1: Customers are unhappy with the merchandise or service they received. When customers pay with a credit card, they have the peace of mind that they can dispute a purchase with their creditor. While the credit issuer will investigate the matter and determine if the customer or your business is at fault before automatically issuing a chargeback, you can reduce the odds that the customer will want a chargeback by being clear about return and exchange policies. Post the details at your point of sale, on your website and on the customer’s receipt. Providing such business-policy information upfront empowers your business to establish boundaries about returns and refunds, and gives the customer the opportunity to choose whether they’re willing to buy an item they may not be able to return or exchange.
Chargeback reason #2: Merchandise/services not received. There is always the potential that the customer will not receive an item or service in the amount of time expected, especially if the order takes place over the phone or online (and ships to the customer). Reduce the odds of a chargeback by staying in close contact with the customer from the moment the order is placed/billed to the customer’s card until it is received and used by the customer.
Automate your email processes to send an order acknowledgement and copy of the amount billed, when and for what items. If your merchant name appears on the customer’s credit card statement in a format that is different than your brand name or website domain, explicitly state the name that will appear on the customer’s credit statement so there is no confusion about the charge. Update customers consistently through the critical stages of fulfillment and delivery so you can spot errors or issues in delivery before they lead to a chargeback.
Chargeback reason #3: Multiple transactions. Accidentally billing a customer more than once may happen on occasion, but the onus is on your business to ensure you catch errors before they become a chargeback. Accurate bookkeeping ensures that you spot issues, void transactions that are duplicates, and contact the customer to let them know the issue was identified and resolved.
Chargeback reason #4: Fraudulent charges. Chargebacks occur when a customer’s account data is used to make an unauthorized purchase. You can reduce the chances that this will happen, and protect your customers from identity theft, by asking customers to provide photo identification at the point of sale to verify card ownership.
If the issue is related to internal fraudulent use (someone in your company is dishonestly using customer data or your security systems were compromised), it’s a serious matter that could become a legal case. Protect your business by securing point-of-sale systems, limiting who is able to process customer orders, ensuring that you do not retain customer bank or credit cards electronically or in hard copy format, and keeping signed copies of customer receipts organized and secure.
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