The Cut-throat Business of Chargebacks: Protection, Prevention, and Prevailing!

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No other phrase instills fear and anger into the hearts of merchants like the word, “chargeback.”

Although a pain in the ass, chargebacks are an essential part of any modern-day business that accepts credit cards.

Way back when, the chargeback system was created by creditors to protect consumers from fraudulent charges, as well as to keep merchants honest and accountable. But, if you’ve ever been on the receiving end of a chargeback claim, it feels more like a personal vendetta. The key is to remain calm, and not take it personally.

What Is a Chargeback?

In short, a chargeback is a reversal of funds transferred.

Contrary to a return, which involves a consumer directly approaching a merchant and requesting a refund, a chargeback refunds the consumer via the card issuing bank and the merchant’s bank.

When a customer notices what they suspect to be an incorrect charge on their credit card statement, they may notify their issuing bank to reverse the charge. The issuing bank then reverses the dollar amount from their cardholder’s account, giving them a credit. At the same time the issuing bank debits the merchant’s bank, who in turn debits the merchant’s account.

Since chargebacks were originally set in place to protect the consumer, in the world of chargebacks, the merchant is considered guilty until he proves himself innocent. In other words, if chargebacks were a casino blackjack game, the consumer possesses house odds.

Too many chargebacks, whether successfully repealed or not, can harm a merchant’s reputation, result in a freeze of their merchant account, a complete termination of their account altogether, or even an investigation and criminal charges. Not to mention chargebacks come with their own slew of chargeback fees and penalties, which if proven valid, are debited from the merchant’s account.

Clearly the best thing a merchant can do in regard to chargebacks, is avoid them at all cost!

Reasons for Chargebacks

There are countless reasons chargebacks are issued. Some of them are technical errors, like having an expired authorization or a simple bank error. Others are clerical, like an accidental duplicate billing, incorrect dollar amount billed, or a refund that was simply never issued.

Frequently, it’s a matter of the consumer’s perception on the product/service quality, in which they are dissatisfied with their purchase and would like a refund.

Finally, some chargebacks are legitimate cases of fraud, in which a consumer’s card information was stolen and the purchase was made without their consent.

Preventing Chargebacks

Here are some tips for avoiding chargebacks:

Communicate with the merchant.
Many chargebacks can be easily avoided, or even rectified, if there is open communication between the consumer and the merchant.

Clearly describe your product or service.
As a merchant, make sure you give clear descriptions of your products and service policies so that liabilities fall upon the consumer in regards to dissatisfied purchases.

Have an easy refund policy.
If a consumer is truly unhappy with their purchase, have an easy return policy so the consumer does not feel the need to initiate a chargeback with their provider.

Check the expiration date.
Never accept expired cards.

Get a signature.
ALWAYS make sure the consumer signs the sales receipt in card-present transactions. As a further precaution, check to make sure the signature is similar to the one on the back of the card. Never accept an unsigned card.

Provide your company contact info.
Card processing errors can easily be fixed by providing consumers with your contact information, whether on the receipt or on your website, so they can contact you directly and have the error fixed without initiating a chargeback.

Optimize your billing descriptor.
Often times chargebacks can be a matter of a misunderstanding, specifically because the consumer is unclear about the transaction details that appear on their credit card statement. Be sure to let the consumer know what business name will appear on their statement. If they cannot recognize the name of your business because of a DBA, the consumer may begin the chargeback process.

Keep clean records.
Of course there are those bad people out there filing fraudulent chargebacks in hopes of getting free stuff. Every year merchants lose billions of dollars to lost merchandise on top of transaction reversals and chargeback fees, all caused by criminal consumers who purchase items and then claim they never did. On many occasions these cases are lost by the merchant for lack of providing simple and clean records.

Additionally, make sure your sales receipts are complete and legible, so that they can be clearly understood by the consumer, as well as a valid piece of proof during a chargeback dispute. A clean receipt should be the first step in fighting a chargeback.

Save receipts.
The statute of limitations for issuing chargebacks vary from provider to provider, however it can be anywhere from 180 days to 3 years following a transaction. Thus it’s recommended merchants retain their receipts and records in an organized fashion, so they are able to thriftily and accurately provide information upon request.

Set shipping expectations.
Often a consumer will issue a chargeback when they pay for an item but have yet to receive it. As a merchant, make sure all merchandise has shipped before depositing a sales receipt. If a customer doesn’t have an item but sees it on their credit card statement, then they may want to issue a chargeback.

On the same note, let them know about expected shipping time and delays in delivery. A chargeback for “services not provided/merchandise not received” can smoothly be corrected with shipping details, carrier confirmation, and evidence of delivery such as a signed delivery receipt (often referred to as a POD, or “proof of delivery”). Or, if the shipping time frame has not yet surpassed, and you have clearly stated on your website or cash register “please allow X amount of days for shipping,” presenting that information to the investigating bank can stop the chargeback.

The same can be said in a reverse situation, in which the consumer claims they returned the items but never received a credit. In this case, let your merchant bank know that you haven’t received the returned merchandise, or the services have not been cancelled by the cardholder.

Follow protocol.
Other chargebacks can be prevented by following basic yet strict credit card processing protocols. If a card is swiped and authorization is denied, do not try to re-swipe or force a posting. Re-swiping multiple times in an effort to authorize a transaction, manually keying in an entry, or calling for credit approval are all things that can result in a chargeback.

  • If a card won’t swipe and you are forced to manually enter the numbers, make an imprint of the embossed card numbers on the back of the receipt. A chargeback done on a manual entry can be lost if there is not an imprint on the receipt.
  • If calling for authorization, make sure to record the authorization code, date, time, credit representative’s name, and transaction dollar amount authorized.
  • Never estimate transaction amounts, a problem more common with tip inclusion in the restaurant industry.
  • In an effort to avoid duplicate transactions, make sure transactions are only entered once, and then completely voided if they are incorrect, prior to reprocessing.
  • Be careful when submitting sales receipts to your bank that only one copy is submitted, or that you don’t send a copy to two different banks. Multiple copies of sales receipts can result in duplicate billing and obviously a chargeback.
  • In a related matter, make sure your credit card transaction receipts are deposited in a timely manner, so that consumers see the debit on their account in an understandable time period, and not months later.
  • Use the Address Verification System (AVS).
  • Collect CVC2 and CVV2 verification numbers aka the 3-digit security code.

Be quick to respond.
Responding quickly to chargebacks is a merchant’s greatest tool, as there is a certain time limit in each step of the chargeback cycle, and a delayed reaction can result in a chargeback loss. In this way, consumer misunderstandings can easily be resolved as well; so if a customer says they never received a credit for a return, as the merchant you can quickly provide proof of the specific day the credit was issued and nip the situation in the bud before it manifests into an all out chargeback war.

Pick your battles.
As a merchant it’s also important to know when to pick your battles. It may be cheaper and easier to let certain chargebacks go if you know you cannot win them, saving yourself the useless time and expense of fighting.


Lastly, if you know you’ve made a mistake, own up to it and accept the chargeback. We are all human and people make mistakes. If you receive a chargeback for a non-matching account number and you know you keyed the number in incorrectly, or wrote it down wrong on a telephone order, accept the chargeback. Same can be said for an incorrect dollar amount. As a merchant you want to maintain an honorable reputation, which may involve admitting when you’re wrong and throwing in the towel. In the end, consider it a lesson learned, thus helping you become more cautious and meticulous in future transactions.

Amad Ebrahimi
Amad has worked in the eCommerce and online marketing world since 2002. He started as an eBay seller, then slowly graduated to building & marketing his own websites and consulting others to do the same. He founded Merchant Maverick out of frustration with all the misinformation and shady tactics that he encountered when trying to find a merchant account for his and his client's businesses. He's the man behind most of the merchant account reviews, and articles posted on Have any questions related to credit card processing? Talk to him.
Amad Ebrahimi
Leave a comment


    Small Business

    We own a small business and have been processing credit for 6 years. We switched processor 7 months ago and all seemed fine. This month we had a consumer call and say the payment they made never went through on their card. We checked and our machine was holding all transactions and not sending the batches in to be processed. We should have noticed but did not. This had been occurring for 4 months. We submitted our batch and 47 transactions in amount of over 5,000 are “late presentation”. Do you have any advise? Our processor said we will be charged a fee per transaction and the credit card bank can choose not to pay. Do you know if they choose not to pay if we can contact our consumers to see if they make payment? Thanks for your help.


      I recently provided services and accepted an unsigned credit card. I do have a valid government ID documented, swiped card with authorization, and even a copy of the ID. Can these be used in lieu of a signed card. It seems from the merchant agreement that I am not supposed to accept unsigned cards. Please advise.

        Tom DeSimone

        While you are supposed to only accept signed cards (and compare the customer signature on the receipt to the one on the card), the reality is that most merchants do not do this. It’s a protocol that is designed to prevent fraud, but no one is going to check to make sure you are doing it. If they supplied government ID, that would be a sufficient alternative in my opinion. And the fact that you documented the ID will protect you if a chargeback does occur.

        Hope this helps,


          Well, the issuer has stated that this transaction was non-compliant because I accepted an invalid credit card. The merchant agreement clearly stipulates that I must check all the card security features, and the fact that I did not verify if the card was actually signed (the amount exceeded the non signature requirement) is a clear breach of the merchant agreement.


            Great article. Question. I am a merchant that has signed agreements with my customer to put them on monthly auto-debit programs for the products I sell. When a customer monthly amount is declined for insufficient funds, I am able to do a force charge, where I am still able to receive the funds owed. Does this follow all the correct rules?

              Tom DeSimone

              Hi Patrick,

              I’m not aware of any way to clear a payment if the money is not in the customer’s account, except at their bank’s discretion. Maybe you are referring to a resubmission (“re-presentment”) of the transaction? This can sometimes be done in the case of NSF, although there are limitations to the number of times a transaction can be resubmitted after it bounces, I believe. There are also time limitations with this. And it will only go through later if funds are made available.

              But what you are describing does not violate any rules as far as I know.


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