Credit Card Chargebacks

by | Mar 17, 2021 | News

We all know that disputes with customers are definitely not fun. This is especially true when it comes to chargebacks. 

Chargebacks are a dispute that happens when a customer places a claim from a charge from your business and asks the card issuer to reverse it. Credit card chargebacks are meant to protect consumers from unauthorized transactions but they can mean big headaches for businesses and they can also not protect the business in case of fraud.

When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do. Unfortunately, this can be a complicated and time-consuming process involving a lot of paperwork and documentation.

It is important to know that most payment processors charge a non-refundable fee ranging from $10 to $25 the moment a customer initiates the chargeback, regardless of outcome. This is usually on top of the standard payment processing fees. 

The chargeback process can differ between payment processors and it traditionally takes between 60–90 days to resolve.

Sharing the story:

One of our partner companies (Mabel Media) experienced a terrible situation with a chargeback.

One of their clients issued a chargeback even though the client did receive the service and the business sent screenshots proving so. 

The company, in fact, received an email from the billing company saying:

 “We’ve received an alert of a potential dispute regarding your transactions. We recommend reaching out to your customer as soon as possible to clarify what the charge was for and try to resolve the issue.

It is important to note that chargebacks are a risk that must be accepted when accepting online payments and there are no payment processors that can guarantee that they can stop all chargebacks from happening.”

Mabel Media immediately reached out to the customer trying to clarify this dispute but unfortunately, that was not enough to prevent the fraud and the bank reversed the money to the client. 

It is shocking that a client can use a tool as the chargeback to make a fraudulent refund of the service provided. We need to learn how to prevent this kind of fraud and avoid situations like this when the bank believes more in the client than the business.

With this recent experience, we want to share some useful tips to prevent chargebacks:

  • Obtain consent from a customer to start billing — for example, by having them check a box to ensure they understand your terms of service.
  • Cancellation should be simple and straightforward for customers.
  • Customer service should be easy to reach and readily available to provide answers for customers’ questions.
  • Communicate each recurring transaction with a quick acknowledgement, so customers know what the charge is for. This could be sending an email to alert subscribers of a billing before a recurring charge, and/or a receipt when the transaction goes through.

We also would like to share some techniques on how to protect yourself from chargebacks.

It is important to know that these suggestions can’t stop a chargeback from happening, but by following them you can ensure that you have a large amount of documentation at your fingertips so that we can fight the chargeback and request for it to be reversed.

  1. When setting up your Payments account, ensure you choose a Bank Statement Descriptor that accurately reflects your business. If your customer clearly recognizes your business name on your bank statement, they are much less likely to question the transaction
  2. Verify the identity of the cardholder. Whenever possible, confirm that the identity of your customer matches the cardholder name to ensure your customer is not using a stolen or fraudulent credit card to pay you. Some business owners have the luxury of meeting their customers face to face and others will request a proof of ID prior to providing remote services. This will help to protect yourself from Chargebacks claiming to be fraudulent.
  3. Have a written agreement with your customers. This would be a signed document that outlines the full terms of service, what is expected of your product, and any return/refund policies. Creating a follow-up survey or email to confirm satisfaction with the product/service can help to identify any issues before they reach the Chargeback level, and also be valuable evidence in your favor if your customer does choose to issue a dispute.
  4. Keep good records of correspondence with your customers (the more through text the better!). If you do receive a chargeback, it will be your job as the merchant to provide evidence  in order to dispute the chargeback on your behalf. In order to build the best case possible, in addition to the items outlined above, on-going correspondence through email or text message can be very helpful in closing a dispute in your favour.

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