As an online business owner chargebacks are never wanted, but the reality is that they happen from time by time and they’re something you should be prepared for. In this blog post we’ll explain how to help avoiding disputes and chargebacks before they happen.
What is a chargeback?
A chargeback occurs when your customer initiates the return of their funds through their bank which usually happens due to fraud. As a merchant you have to accept the chargeback first, since the chargeback is issued directly by the bank. However later in this article you will find ways how to deal with them and resolve them.
So what are reasons for chargebacks and how to reduce them?
Online fraud is one of the most frequent reasons for chargebacks. Fraud happens when the credit cardholder has not authorised the transaction, e.g. when the card was stolen or lost. This can get fairly costly for you as a merchant with high chargeback fees and loss of sales revenue.
What to do:
- Implement security protocols such as 3-D Secure to ensure the customer is really the credit card holder. This prevents you from costly chargeback fees in most cases.
- Send an email receipt after the transaction to inform the customer about the purchase. If the customer didn’t process this purchase, he can easily get in touch with you to cancel the order.
- Watch out for suspicious orders such as:
- Requests to change the shipping address after the order has been paid
- Unusually large quantity of international orders within a short period of time
- Large number of orders all happening at an unusual time
- Multiple orders from different customers shipped to the same address
- Suspicious and fake email addresses
- Suspicious shipping address like P.O. Boxes
Unfamiliar credit card descriptor
It happens, that a customer doesn´t recognize specific information as soon as he has done the checkout.
For example if you use a different credit card descriptor than your businesses name, people probably won’t remember several days later. Your credit card descriptor shows up on customers’ credit card bills or online statements and is a reference to remember the transaction.
One huge point that causes chargebacks is, that the customers just can´t identify the charge and conclude it’s fraud if they can’t see your businesses name at the first sight.
What to do:
- Ensure the name of your shop is inserted as billing descriptor or at least something that can be clearly connected to your online business
- Add additionally the URL of your shop in the description to minimise risk
Customer is unsatisfied with The delivery
It is very frustrating for a customer not to receive the ordered item. This could be because the delivery failed, the item was broken or just didn´t meet the expectation (or it was something completely different).
What to do:
- Ensure you ship products immediately so it will arrive in time. If you foresee delays, inform your customer upfront and inform him about the new expected delivery date. Also make sure the delivery service required a signature by accepting the delivery.
- Package your products adequately to ensure they do not get broken on the delivery
- State your contact information clearly on the delivery receipt, so that the customer can easily get in contact with you in case the ordered item is damaged or doesn’t meet expectations and you can ship a replacement immediately.
- To manage expectations, the product description needs to be accurate and match the product. Give detailed information and put an image or screenshot of the product or service on the website. Also outline clearly, if the product image can vary from the original version and if there are different options such as sizes and colours available.
Subscriptions and Free trial ended
Being charged for a service or product your customers didn’t sign up for (anymore) is very frustrating for them.
Collect data by offering a free trial, but send an additional opt-in as soon as the trial period ends. This might reduce the amount of customers who forgot to cancel the account. Therefore only users, who enjoy your product or service will continue paying. While others who liked your product but didn’t decide to continue with a paid version, might recommend it to colleagues and friends. Customer who didn’t cancel in time will issue a chargeback anyway and lead to additional costs for you.
What to do:
- Ensure that your billing schedules for subscriptions are clearly communicated to your customers
- Send a reminder before an automated notification of any changes that apply to the contract
- Send an order confirmation and invoice, which outlines the length of the contract, related costs and included services
- Especially if you accept VISA-payments, there are some additional rules, you have to take care of
No refund available
In cases of unfamiliar charges, there are a few customers who start researching before issuing a chargeback and will try to get in touch with you to clarify the billing.
Give the customers the option to contact you and the possibility to refund the amount or replace the product instead of dealing with costly chargeback fees.
As soon as the customers discussed the possibilities, ensure to react in time, by sending the alternative product or crediting the refund immediately. If you are not available to discuss or don´t take care of the issue in an appropriate timeframe, the risk of a chargeback increases.
What to do:
- State shipping and refund policies clearly on your website
- Ensure a lean process and communication in case of a dispute
- Make contact information as a support hotline or e-mail address easily accessible
- Be available for your customer and be understanding for their needs and issues
As you can see, there are many easy and practical ways to prevent chargeback. But they do happen, even if you keep all those tips in mind. Therefore you have several approaches how to deal with it:
Contact your customer
Getting in touch with your customer might clarify the dispute and solve the issue immediately. This is especially helpful, if the customer didn´t remember the purchase because of an unclear credit card descriptor. If everything is clarified, the customer can get in touch with his bank and cancel the chargeback immediately.
Dispute the chargeback
If you can’t get in touch with your customer and you can state that your part of the contract was 100% fulfilled, get in touch with your payment service provider (resp. bank) and dispute the chargeback. This will help to find a quick and easy solution for both parties with the bank acting as the mediator in the dispute.
Accept the chargeback
You have also the option to agree to the chargeback if you don´t see any chance to get the money or the efforts to dispute the chargeback exceed the amount of money, which is deducted from your bank account.
If you enjoyed this post, you may also be interested in our infographic about e-commerce fraud