The Definitive Guide to Chargeback Prevention

Imagine this: you’re nearing the end of your busy season and you’re going over your store’s performance. That holiday rush was everything you had hoped for, and you’re on track for another great fiscal year. Then suddenly, you get notice that one of your customers has flagged you with a chargeback.

This can be heart-wrenching to say the least, but if you’ve ever experienced a chargeback, then you know how much of a headache they can be to handle and how costly they can be to settle. So now you’re wondering if you have all the right evidence ready to present to your acquiring bank or if you should have taken some more steps to prevent this from happening.

This blog will be your definitive guide to preventing chargebacks. Scroll down for 7 quick tips and why they matter.

Chargebacks are no joke. If you get too many, you could be labeled a high-risk merchant to all banks which usually means higher chargeback fees, possible fines of up to $25,000, and in certain cases, bank account closure. You can also land on the MATCH list (Member Alert To Control High-risk merchants) meaning you get blacklisted and prohibited from setting up another bank account for 5 years.

Some of the more likely costs associated with chargebacks are as follows:

• loss of your product or service that was sold
• chargeback fees
• any transaction processing fees
• shipping costs
• sale revenue
• increased stress
• lost time proving validity in your sale

Interestingly enough, a recent study by JP Morgan found that, an estimated 30 percent of all chargebacks in North America were friendly fraud, where a customer files a fake chargeback to get a refund but in turn keeps the merchandise. This is usually the case in “card not present” transactions such as e-commerce websites, meaning the credit card information is manually typed and not physically and tangibly seen by the merchant.

However, all chargebacks, friendly fraud or not, can be very time-consuming and difficult to disprove. It’s important to take all precautions to ensure readiness in all chargeback situations. Making sure you have a chargeback prevention plan put in place that all your employees adhere to, can mean the difference between running a profitable business and never owning a business again.

So what can you do to prevent chargebacks?

7 Quick Chargeback Prevention Tips

1. Understand the most common reasons for chargebacks.

There are many reasons your customer is trying to dispute a charge. It could be that your customer’s card information was stolen and unauthorized fraudulent purchases were made. But it’s not always fraud, and that’s why it’s beneficial to know the most common chargeback requests. Here are a few of the top reasons why customers dispute their charges:

• Your customer did not receive said product or service
• Your customer does not recognize the charge on his/her credit card statement
• Your customer believes the product or service is not as it was described or it is defective or damaged

2. Make your payment descriptor an identifiable business name.

Your payment descriptor on your merchant account is how your business appears on your customer’s credit card statements. If the parent company or a short-form or an abbreviation of your business shows up on their statements, your customers can get worried and confused and are more likely to request a chargeback.

For example, your business name could be “Frank’s Burger Shop” but your payment descriptor could be set as “FBS #4181”. If this is your case, it’s best to let your customers know what to expect on their statement ahead of time, or contact your merchant service provider to have your descriptor changed.

3. Make your customer service team as accessible as possible.

The easier it is for your customers to get a hold of you for a charge dispute, the less likely they are to contact their issuing bank and request a chargeback. It’s crucial to be readily available to your customers, whether it be by phone, email, social media, or online chat. The quicker your response times, the more likely you can resolve the dispute with your customer and keep a lasting relationship with them.

However, it is imperative that you save all emails, chats, and correspondence related to any disputes or transactions as it will be much easier to provide compelling evidence if the matter gets escalated later.

4. Ensure detailed product information.

It’s important that your customers receive the product or service that was advertised or you could be hit with a chargeback. If you only provide a photo, it is difficult for your customer to tell the exact size or weight or full functionality of your product. Ensuring clear photos, dimensions, explanations, material list, and weight can prevent your customer from disputing a charge due to your product not matching what they expected to receive.

5. Use anti-fraud security features and fraud prevention tools.

Accepting EMV (Europay, Mastercard, Visa → better known as chip card) can vastly reduce card-present fraud due to its numerous security features such as pin entry. For e-commerce sites, having card-not-present fraud prevention tools such as mandatory entry of card expiry date, AVS (Address Verification System) and CVV or CID (Card Verification Value or Identification Number) are highly recommended as they verify the owner and possessor of the credit card being used.

Your merchant service provider should be your fraud prevention guru. They should customize any added security features based on your business’s needs and risks. Features such as IP velocity filters or IP country blocks that limit what countries can make purchases or how many times one can make a purchase on your site. Choosing to partner with a reputable payment provider like Paystone, your business can reap the benefits expert payment support and secure credit card processing.

6. Require signatures for all shipments.

Tracking all shipments and using a trusted delivery company can highly reduce friendly fraud. More importantly, adopting a strict delivery protocol such as mandatory sign offs on all delivery drop offs can circumvent any disputes by a customer not receiving their product.

7. Have a clear return policy and procedure.

Making sure your business has a clear return policy is not only an integral part of a profitable business, but it also significantly reduces chargebacks. If your customer chooses to return a product, and it is not clear when or how or if they even can go about returning it, you are more likely to get a chargeback and a loss of your sale. It is essential to make it understood by your entire staff, and make it as visible as possible to your customers and reiterated to them more than once.

You should also never alter your customers’ sales receipts and your return policy should always be pre-printed on all receipts and signed by the cardholder at the time of the transaction.

Another great return policy best practice is to process any credit or return back to the original card used during the initial purchase, instead of refunding by cash. And if a credit is due on more than one sale to the same card, it’s best to process each return individually.

These tips can ensure an accurate paper trail for chargeback evidence and will drastically reduce the likelihood of chargebacks.

For more information on return policy best practices, click here.

Chargebacks are preventable and avoidable. They can be detrimental to your business’s finances and your business’s positive brand image. So, why wouldn’t you try to prevent them? By implementing these quick tips and best practices, you are helping to protect your customers’ pockets as well as your own. Your customers will appreciate your security measures and together you can help end credit card fraud and chargebacks once and for all!