Chargebacks: practical tips and tricks
As a merchant, you may have been confronted with a customer’s request for chargeback. This possibility to revoke a payment is a very useful means of recourse for consumers, aimed at protecting them against any abusive and unauthorized use of their bank card. Nevertheless, when the opposition is granted, it obviously has an impact on you. That’s why we discuss here the ins and outs of chargebacks.
What is a chargeback?
A chargeback is a procedure initiated by a customer with his or her bank in order to claim a refund of an amount paid to the merchant. This request can be initiated for example, after the delivery of a wrong item or a damaged product, when the amount has been accidentally debited twice or when the customer’s card has been stolen. A chargeback concerns transactions made with a bank card in a physical store and online.
How does a chargeback process work?
The cardholder can dispute a transaction with his bank and generally has 6 months after the purchase to do so. If the bank considers the dispute to be legitimate, the chargeback procedure is initiated and the amount of the original payment will be debited from the merchant’s account. If the merchant disputes the chargeback, he will need to provide evidence to support his claim. If the cardholder’s bank decides to accept the defense, the funds will be returned to the merchant by the acquiring bank. If, on the contrary, the defense is refuted, then the merchant will not get the transaction amount back.
In the event of a disagreement between the cardholder’s bank and the merchant, the parties may resort to arbitration and it will then be up to the card scheme network to decide.
What do you need to know?
As a merchant, the burden of proof is on you. Each merchant is by default responsible for chargebacks. If you do not provide proof of sale clearly showing that the transaction was made with the cardholder’s consent, the amount claimed by the cardholder will automatically be refunded to him. The response time you have will always be specified by the acquiring bank and is usually 10 days following the request for supporting documents.
Finally, be aware that chargeback requests are assessed by the cardholder’s bank. Therefore, be sure to provide solid evidence that formally demonstrates the validity of the transaction.
How much does it cost?
The chargeback procedure involves the intervention of several parties, including the issuing bank, the acquiring bank and the card scheme network. It is longer and significantly more expensive than a traditional refund settled directly between the customer and the merchant. The costs associated with a chargeback are around 24 euros.
How to avoid it?
There are several easy tips to avoid chargebacks, starting with fulfilling the commitments made to your customers. Avoid late deliveries. In case of delay or out of stock, notify your customer as soon as possible. Once the parcel has been delivered, ask for a signature from the receiver as proof of confirmation.
Have a clear refund policy. Make sure your contact information is clearly visible on your website or in your store, so that the customer can easily contact you in case of problems. It’s also important to respond quickly to customer questions. This will avoid the need to initiate a chargeback with the bank. If a mistake was indeed made on your part, proactively refund the customer.
How can I reduce the risk of refunds and chargebacks?
Following our internal analysis and industry benchmarks, we identified that the conditions of your business activity expose it to a higher risk of chargebacks.
Eliminating the risk of chargebacks fully is not possible, but businesses can take several actions to limit the risk of chargebacks from occurring in the first place.
Here below are the top 10 best practices that can help you and your business to limit your number of chargebacks and ensure smooth processing of your transactions:
- Provide Clear and Accurate Product Descriptions
Ensure that your invoices contain clear product descriptions. This helps eliminate misinterpretations and allows customers to easily reference the items they purchased, including detailed features and any associated fees. This clarity can prevent misunderstandings down the line.
- Clarify Conditions for Pre-Payments, Tailor-Made Goods, and Services
For personalized items or advanced payments, clearly outline the conditions related to payments, delivery, and return policies at the time of order. This ensures customers understand what to expect and reduces potential disputes.
- Keep Customers Informed Through the Delivery Process
Maintain communication with customers at every stage of the delivery process, from the purchase date to the estimated delivery time. If there are delays, inform customers promptly. This proactive communication fosters trust and reduces the likelihood of frustration that could lead to chargebacks.
- Communicate Return, Refund, and Cancellation Policies
Clearly communicate your return, refund, and cancellation policies to customers at the time of the purchase/transaction. This transparency can help prevent chargebacks in cases where customers claim to have canceled their orders but are still charged.
- Be Transparent About No Refund Policy
In exceptional cases where a “No Refund Policy” is adopted, it’s important to clearly communicate this to the customer at the time of the transaction. Clearly state “NO REFUND” on the receipt/invoice to ensure customers are aware of this policy at the time of the transaction.
- Avoid Strict Refund Policies
Consider offering flexible refund or return policies. For example, a 30-day return policy may reduce the likelihood of chargebacks compared to a stricter 14-day policy. Remember, customers can initiate chargebacks up to 120 days after a purchase.
- Set Clear Expectations for Refund Processing Time
Clearly outline how long refunds will take to process. This builds trust and can prevent customers from initiating chargebacks, as they will wait for the refund period to pass before taking further action.
- Use Clear and Descriptive Billing Descriptors
Ensure that your business name on your customers’ bank statements closely matches your store’s name and branding. This helps customers easily recognize their purchases and reduces confusion that could lead to chargebacks.
- Implement Fraud Prevention and Detection Measures
Verify your transactions through AVS and CVV. Ensure compliance with security standards such as PCI DSS and SSL to protect against fraudulent activity.
- Facilitate Customer Contact
Make it easy for customers to reach you instead of their banks. Display your phone number, email address, and social media contact details prominently on invoices. A clear and reasonable refund policy will also encourage customers to contact you directly with their concerns.
Use technology as a tool
In addition to these simple actions, you can also rely on various technological tools.
Indeed, your payment terminal is an asset in the prevention of fraudulent chargebacks. All our terminals comply with the EMV standard (Europay, Mastercard, Visa), which aims to prevent fraudulent actions with cards.
In order to avoid manual amount entry errors, use a cash register software that establishes a direct communication between the cash register and the payment terminal, so that the amount is automatically displayed on the terminal.
Do you have any questions? Do not hesitate to contact us!
