For Retailers: Preventing, Avoiding, and Disputing Chargebacks

If you’re any kind of retailer, whether brick-and-mortar, full ecommerce, or even a click-and-mortar operation, you’re going to face a lot of chargebacks for as long as you accept credit cards. Chargebacks are a royal pain because it means you either have an unhappy customer, a problem with an item you sold, or even fraud.

You’re also dealing with lost revenue, as well as any associated costs associated with shipping the raw materials, making the product, and shipping it out or selling it. So not only have you lost sales, you’ve lost your initial investment. That means chargebacks can hit you twice.

There are two types of chargebacks retailers have to deal with:

  • Chargebacks: A transaction gets reversed and shows up on your merchant account as a debit.
  • Retrieval Request: A cardholder or acquiring bank questions a transaction and requests a copy of the sales draft. It’s less permanent and you have an easier time of contesting it.

And if the loss of revenue and costs weren’t bad enough, if you get enough chargebacks with Visa or Mastercard, you can get hit with a number of penalties that can result in higher fees and even fines. For example, Visa has two new “penalty box” programs, the Visa Chargeback Monitoring Program (VCMP) and Visa Fraud Monitoring Program (VFMP). In both cases, you’ll pay higher rates just for that monitoring, so avoiding chargebacks can save you more money than you might think.

How do you PREVENT chargebacks?

Credit card reader. Chargebacks are a big problem for retailers.

Chargebacks usually occur for a number of different reasons: Problems with processing refunds in a timely manner, a customer service issue, a product quality issue, or even fraud.

While you can’t prevent all chargebacks, there are a few of these you can manage on your end. For one thing, make sure your employees have regular training to teach them how to provide high-quality customer service, as well as being able to process refunds quickly and efficiently.

Customers may also have problems with lost online orders, receiving the wrong items, or being charged more than once, which can all be avoided if you have established processes and staff training. You can also reduce your number of chargebacks by improving different processes and adding double-checks to your most problematic areas.

It’s also important to know that a customer’s chargeback cycle can take as long as 30 days, but as a merchant, you only have five days to dispute any chargebacks with the necessary documentation proving your side of the story.

If you miss that five-day window, you automatically forfeit the right to any disputes, so be sure to keep track of all transaction records and respond to all chargeback notifications immediately. Make it a practice to answer them at least every other day.

Retrieval requests, on the other hand, are a little harder to prevent. These are often caused by a confusing entry on the cardholder’s credit card statement. That’s because the issuing bank uses its own abbreviations and code, which means it’s hard to figure out what each merchant is. It also doesn’t help if the company that holds your merchant services is named differently from your retail operation’s name: A shopper may not realize that “Smith & Sons Holdings” is the same thing as “Cool Beans Coffee.”

How do you AVOID chargebacks?

The other chargebacks you’ll have a problem controlling are those associated with processing issues and fraud.

Fraud can mean a stolen credit card used to buy things from your store, a card obtained under a stolen identity, or it can mean something called friendly fraud.

Friendly fraud, unlike identity theft or stolen cards, is when the cardholder commits fraud themselves. For example, someone orders a few pizzas, has them delivered and then issues a chargeback saying there was something wrong with the food.

It’s even becoming an epidemic where people will gather occasionally and take turns “buying” dinner. The buyer then issues a chargeback, getting the money back into their account. The next time, one of the others will repeat the process, sometimes even from the same restaurant.

You can avoid chargebacks like this by requiring all in-store credit card users to show an official ID in order to make sure the holder is the owner. You can also avoid friendly fraud by tracking consumer behavior patterns as a way to spot clusters of chargeback fraud. There are even tools like Kount’s Friendly Fraud Solutions. And you can use the Visa Merchant Purchase Inquiry which lets the issuing bank respond when a customer issues a chargeback. This way, the bank can verify the information such as the account number, address, and so on before the official chargeback is even made.

You can also combat friendly fraud by confirming the content of all of your pick-up and delivery orders to at least show that the order matches what the customer ordered. Also, if a customer complains, offer to fix errors, or even issue the refund right away. It may hurt your revenue, but at least you won’t be hit with a chargeback.

How do you DISPUTE chargebacks?

When you’re notified about chargebacks — either through daily email summaries or by logging into the web portal — you’ll need several documents that lets you “tell your side of the story.”

Your statement will show the cardholder’s information, as well as the things they bought. Your documentation should show that the items were delivered as promised, whether it’s an acceptance of your terms and conditions, a packing slip, proof of delivery, invoice, proof of usage, or even proof of a refund. If you have other communication, like emails or social media, that also helps.

You may need to take some additional steps or provide additional documentation, depending on what your issuing bank or the card network requires. For example, the Visa Claim Resolution (VCR) has automated part of their review process before a chargeback can be started, such as whether the chargeback was initiated in the allowable window of time, if there was a refund, or if the purchase happened after a fraud notification.

Unfortunately, you can’t completely avoid chargebacks. There will always be one or two that sticks despite your best efforts. But if you do everything you can to prevent them — improve fulfillment processes, keep all documentation, and respond within the 5-day response window — you can reduce the number of successful ones and protect yourself from the credit card penalty box.

Some industries are more apt to be hit with chargebacks, such as CBD dispensaries, gambling, adult entertainment, and subscription services. CB-Alert can help you fight these and protect your bottom line. For more information, please visit the CB Alert website.

Photo credit: Maria Domnina (Pixabay.com, Creative Commons 0)

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