A chargeback, simply put, is when a credit card company withdraws money from your account and puts it back in the account of the consumer following a dispute. Generally, such an action occurs for one of the following reasons:
- the credit card was used without the consent of the holder
- the customer returned the product and was not reimbursed
- the customer never received the item they purchased
- the customer received an item that was damaged, defective or did not fit the product described and was unable to get a refund
- technical problems between the merchant and the bank led to the customer being charged twice
- problems with the authorization process
Whatever the reason, chargebacks can be a costly and time-consuming problem for you, the merchant: you'll of course lose that sale, pay any shipping costs, chargeback fees and incur damage to your credit rating. A high rate of chargebacks can even jeopardize your company’s ability to process credit card transactions as a whole, which could be a devastating blow to your business. Chargebacks, thus, should be systematically reduced whenever possible. Here's how:
1. Use a name that customers will recognize
The single most prevalent reason for chargebacks is that customers don't recognize the name of your company on their statement or bill. So it's vital that you make sure your credit card descriptor is the name of your company.
2. Respond to charge inquiries ASAP
This starts with making an easily available (and locatable) method for confused customers to reach you, be it a phone number or email prominently displayed on your website and/or packaging. While some aggrieved customers may immediately contact their credit card company to issue a chargeback, many try to contact you first, so make sure you're available and give these incoming messages high priority.
3. Provide detailed descriptions of your product
The best way to make sure people don't want their money back is to make sure they know exactly what they're ordering. For online orders, this means providing photos, previews or screenshots of your product or service whenever possible, as well as listing out a detailed rundown of what comes with the purchase price.
4. Collect CVC2 and CVV2 verification numbers
Most Visa, MasterCard and Discover credit cards feature a 3-digit security code on the back. For American Express cards, a four-digit security code will appear on the front. These codes are meant as an extra security measure to prevent against fraud, so make it a policy to always ask for them when processing credit card payments. Visa reports that the use of these codes can reduce chargebacks by up to 26%.
5. Collect signatures upon delivery
If you deliver physical goods, try to use carriers that require the recipient’s signature upon delivery, and be sure to retain a copy of all delivery slips for your records. These records may be useful if you need to prove that a particular product was actually delivered.
6. Look out for fraudulent orders
While you won't be able to sniff out all fraud, there are some key warning signs to keep in mind before confirming an order:
- a large majority of fraudulent orders come from foreign countries
- several orders of the same, expensive product can often indicate fraud
- a customer opting to pay a large expense for next-day shipping can indicate fraud
7. Be clear about refund and return policies
Clarity about returns is just as important as describing the product accurately. In a brick-and-mortar setting, make sure that conditions of the sale are written on the receipt (the closer to the customer's signature, the better) and that you display your refund and return policies as conspicuously as possible—near the cash register is ideal. For online sales, make sure that customers click “I agree” to your terms, conditions and return policy before completing their purchase.
8. Offer refunds
Generally, extremely aggrieved customers will get their money back one way or another. That means it's usually in your best interest to offer full refunds to customers who are not satisfied. If money is tight and high refunds run the risk of disrupting your revenue, consider offering a more limited refund. For example, some businesses only allow customers to return the item within 3 days or to exchange items for store credit. This gives the customer the opportunity to return the item while minimizing the risk of loss for the business.