What to Do When Faced With a Chargeback

Anyone who’s been in business for a little while knows that, at some point, you’re going to face a chargeback. Some business owners might even say that chargebacks are simply the cost of doing business. While it is true that chargebacks are going to happen, it doesn’t mean you have to roll over and accept them. After all, chargebacks are costly, with single incidents falling between $50 to $75.

Chargebacks are also on the rise. A 2017 report by Clearsale shows that the number of chargebacks are increasing by 20% each year. The report identified six of the most common chargebacks:

  • 30% - The purchase was made with a stolen credit card
  • 26% - The product never arrived
  • 15% - The retailer shipped the wrong product
  • 4% - The product didn’t match the website description
  • 4% - The product didn’t meet the customer’s expectations
  • 3% - The order was billed twice, or there were other clerical errors

As a merchant, avoiding as many of the above reasons as possible is a good place to start if you want to remain out of the crosshairs of a chargeback. Depending on the type of chargeback, there a few things you can do to try and resolve the chargeback in your favor.

Friendly Fraud

One of the most common types of chargebacks is called friendly fraud. Of course, for merchants, there isn’t anything friendly going on here. A friendly fraud chargeback is caused by a customer who receives a product or service as agreed upon and for whatever reason decides to file a dispute. In some cases, the person is dishonest, and, in others, he/she doesn’t remember buying the product, or it could have been purchased by a spouse.

In fact, Quicksprout found that 80% of customers filed a chargeback simply because they didn’t want to go through the hassle of letting the merchant know they’d like a refund. While that may sound disheartening, 18% of merchants who dispute friendly-fraud chargebacks win.

Start with the Customer

As a first step in trying to resolve a chargeback, reach out to your customer. Ask them what you can do to resolve the matter. If you have no relationship with the customer, there might be nothing you can do. The customer may simply not respond. This is why it’s important to try building great customer relationships from the beginning.

File a Response with the Processor

A processor is the credit card processor used by a merchant. After the customer files a dispute with his/her bank, the chargeback process begins. The merchant has a certain number of days to respond. If the merchant doesn’t respond, the customer wins the dispute, and the merchant pays the chargeback fee while also incurring a loss in revenue.

Merchants respond through their credit card processor. The customer’s bank then reviews the dispute and makes a decision. The merchant can increase its chances of winning by filing compelling evidence with the response.

What is compelling evidence? It’s an audit trail that the merchant must put together. The evidence is meant to show that the merchant did everything perfectly relative to the customer’s transaction. Some evidence includes:

  • Timeline
  • How the product was delivered, along with tracking info
  • Product receipt
  • Any communication with the customer

Processors can usually help merchants identify compelling evidence. After the evidence is submitted, it’s a waiting game for the decision.

If the customer’s bank decides in favor of the customer, that is usually the end of any response. At that point, the merchant pays the chargeback fee and loses revenue related to the disputed purchase.

Many businesses don’t send responses to chargebacks. Gathering evidence can be very time-consuming. The fact that so few merchants actually win chargeback disputes is another reason that few find it worth their time to even try to win.

To help cut down on time involved with gathering evidence, make it easy to gather up everything needed. This starts with the type of system you’re using. If retrieving critical customer data points require running complex SQL queries and interfacing with third-party providers, it might be time for a change. A more efficient system will certainly benefit you when it comes to evidence gathering.

Also, don’t wait for the clock to run out. While you have a few weeks to respond to a chargeback dispute, there’s no reason to wait. Gather up your evidence and submit it as soon as possible.

Preventing Chargebacks

The best option for winning a chargeback is to avoid them altogether. Speak with your processor to see if it has a list of what to implement so you can avoid chargebacks. The processor may even have an audit service that can look at your implementation and make sure you haven’t missed anything.

Even if you’ve done everything right, it doesn’t mean you’ll avoid a chargeback; but it certainly puts the odds more in your favor.