Chargebacks…no one wants to hear it, let alone experience them. The word alone causes both frustration and administerial pains. To combat this nasty occurrence, like any ailment, it’s vital that merchants familiarise themselves with the term and how to prevent it.
Ideally, before they start processing!
So let’s rip off the band-aid and get into it!
1. What is a chargeback?
Sometimes people can get confused between a chargeback and a refund. What makes them different?
A chargeback is when funds for the purchased amount are requested to be returned, by your customer’s card issuer (credit card company). This is a result of your customer contacting them and disputing the transaction made on their credit card. This can be requested up to 120 days from the date of purchase. Hopefully, this is already a red flag that this is not a desired situation to be in.
A refund, on the other hand, is between you and the customer. Whereby you, the merchant, might make a full or partial refund to your customer, depending on your individual policy. If a physical product is involved, this will be returned by the customer, to you, the retailer (merchant).
2. What are the likely occurrences that cause a chargeback?
The majority of chargebacks are initially flagged by the customer (cardholder). Therefore, it is so important that you address what you can within your business to ensure that you can avoid chargebacks at all costs. We’ve got some tips for you, which we’ll get to next.
Chargebacks can be raised due to a number of reasons, the most common being:
a. Processing errors such as duplicate processing, the amount charged differs from what was stated, a credit not processed or where a recurring transaction has been cancelled, otherwise known as ‘friendly fraud’.
b. The service or product purchased was not received, or they were not as described.
c. The cardholder does not recognise the transaction; or
d. Where fraud or potential fraud has occurred when charges have been made on the credit card, but not by the owner.
3. Why are chargebacks so terrible?
If a chargeback has been issued, your customer’s credit card company (card issuer or card scheme) will request funds paid by the customer, be returned. It is mandatory at this stage that you do just that. You are also lopped with a chargeback fee (between 15-30 Euros, depending on your individual bank) AND to make matters worse, and have lost your product, meaning it cannot be resold.
But it does not stop there; your merchant account is marked with a chargeback. The more chargebacks you have, the more difficult it is for your payment processor to support your business and can result in freezing your funds (ouch!). Credit card companies impose higher fees and restrictions on businesses with a high level of chargebacks or worse case, do not support at all. Meaning your online business is…no more.
4. What if I do not agree, how do I dispute a chargeback?
All chargebacks are assigned a code by the customer’s card issuer, relating to the reason behind the dispute. Depending on the code assigned, you have the ability to dispute a chargeback, this is known as ‘representment’ or ‘dispute response’. Make it your priority to action this. While card schemes might indicate 45 days for you to respond, it’s vital you submit information much earlier than this. Timeframes can also vary between banks so it’s important to liaise with your Merchant Acquirer as to the deadlines and process.
Your payment processor should outline for you the steps to follow, however here is a brief guide as to what to expect and some basic steps to follow.
1. From the date the chargeback appears in your account, you usually have 10 days to formally dispute it and provide any supporting documentation, for example, the invoice, proof of delivery to show that the product or services ordered were received, and in good working condition and any other correspondence that you have had with the customer. You must submit the supporting documentation to your Acquirer who will dispute the chargeback on your behalf.
2. If you have not sent the documentation within the (usually) 10 days, it is likely that you forfeit the right to dispute. Refer to your Acquirer for their specific time-frames on submitting supporting documentation.
3. Unfortunately, card schemes do not provide updates on disputes in progress. The only way you will be advised if successful is if you do not receive a second chargeback advice, which can take up to 45 days after your initial representment was submitted (again this process can vary between banks).
What commonly occurs is that many merchants get caught up in providing the right paperwork, that they miss the deadline. Once a transaction has entered the chargeback process, merchants cannot offer a refund. In fact, it is a violation of the card scheme policy. It is always best to check with your Acquirer in the first instance on what the best action to take is”.
5. What can I do to avoid it?
To avoid chargebacks and protect your business and brand, there are proactive steps you can take. Here’s just a few:
1. Ensure your company can be easily identified on your customer’s credit card statements by including your trading name as they know or recognise it.
2. Make sure your customers can readily contact you to discuss any disputes. A simple conversation can avoid escalation.
3. Have a clear returns and refunds policy that is easy to locate and understand on your website and customer receipts.
4. Shipping records to prove items have been sent and delivered.
5. Take control by routinely reviewing transactions manually to look out for suspicious purchases such as:
a. transactions made with different delivery and billing addresses
b. purchasing large volumes of the same item
c. expensive items requested for immediate delivery
Payment processing companies, like BillPro, offer merchants’ customers round the clock support to assist with any transaction queries. We think of it as the first line of defence to resolve potential issues. Additionally, BillPro offers it’s merchants fraud protection including credit card and IP suppression lists, customisable ticket values and manual verification. It’s all in a days work really!
Understandably no merchant wants to hear the words, “I want my money back”. However, you still have the opportunity to make this a good experience for both your business and your customer. A good returns policy increases sales, as online shoppers are presented with fewer barriers to purchase, knowing if they do need to return an item, it won’t be a problem. It’s been shown that by creating a seamless process also increases customer loyalty. In essence, consideration to your returns and refund policy should be as well thought out as the initial purchase process. And importantly, being able to deal with refunds swiftly, means that you are less likely to have it progress to becoming a potential chargeback.
Don’t make the mistake of assuming chargebacks are just a cost of doing business. The only one it will cost long term is your business, its online reputation and ability to process. So put some steps in place and thrive!
For more information or support, contact one of BillPro’s (all-knowing on chargebacks) team.