The Small Business Guide To Preventing Chargebacks (& How To Fight Chargebacks When They Happen)

Many chargebacks can be easily avoided or rectified if there is open communication between the consumer and the merchant. This works both ways: Consumers should always attempt to resolve the situation through communication with the merchant before resorting to requesting a chargeback. This step is particularly important for eCommerce merchants, who never get to meet their customers in person.

How do you do this? For retail merchants, posting clear refund policies in your store and on your website is a must. Verbally explaining these policies to your customers before finalizing a sale can also be beneficial. Online merchants will have to settle for posting refund information on their websites, but you should make an effort to make it as easy as possible for a customer to find this information. In either case, the goal is to clarify the refund procedure before a customer completes a purchase.

As a merchant, make sure you give clear descriptions of your products and service policies so that liability is more likely to fall on the consumer for unsatisfactory purchases. Again, this step is especially important for eCommerce merchants, as the customer will have to make a purchasing decision without seeing the product in person.

In far too many businesses, customer service is an afterthought that doesn’t receive the commitment it deserves. Making it as easy as possible for your customer to contact you by telephone or email will pay dividends in the form of both happier repeat customers and fewer chargebacks. Make it a priority to respond to all inquiries as soon as possible.

While no one likes to have to process a return, it’s far less expensive and inconvenient than having to deal with a chargeback. If a consumer is truly unhappy with their purchase, having an easy return policy can drastically lower the likelihood that they will pursue a chargeback. Return policies should be clear and cover any potential situation. At a bare minimum, define how long after purchase the customer has to initiate a return and any restocking fees that may apply.

You should never accept an expired card. Most credit card terminals will detect an expired card automatically, but you should still manually check the card as a backup. Train your employees to do this as well.

As of 2023, all major credit card associations have eliminated the signature requirement for credit card purchases. However, this change only applies to the use of EMV (chip) cards, which are far more secure than the old magstripe-only cards. While most customers now have chip cards, there are still some magstripe-only cards in circulation, and you’ll still need a signature to process them. Note that Mastercard has already announced plans to phase out the magstripe on its cards altogether. Newly-issued cards will no longer be required to include a magstripe beginning in 2024, and support for magstripes will be completely phased out by 2033.

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

A billing descriptor is simply the name of your business as it will appear on a customer’s bank or credit card statement. Chargebacks often can be a matter of misunderstanding, especially if the consumer is unclear about the transaction details that appear on their 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.

Chargeback fraud by consumers is becoming more common. It’s all too easy to make a purchase (especially online) and then report it as a fraudulent transaction to the issuing bank. Every year, merchants lose billions of dollars in lost merchandise, transaction reversals, and chargeback fees, all caused by unscrupulous consumers who purchase items and then claim they never did.

On many occasions, the merchant loses these cases because the business lacks simple and clean records.

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

Time limits for filing chargebacks vary from provider to provider. However, it can be anywhere from 180 days to three years following a transaction. We recommend that merchants retain their receipts and records in an organized fashion, so they can quickly and accurately provide information upon request.

Often a consumer will file 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, they may decide to request a chargeback.

Every business needs a clear shipping policy that specifies the expected shipping time and accounts for possible delays in delivery.

A chargeback for “services not provided/merchandise not received” can be corrected with shipping details, carrier confirmation, and evidence of delivery, such as a signed delivery receipt. This is often referred to as “proof of delivery.” If the shipping timeframe has not yet passed, and you have clearly stated on your website or receipt to allow a specified number of days for shipping, presenting that information to the investigating bank can stop the chargeback.

If the customer claims they returned the items but never received a credit, let your merchant bank know that you haven’t received the returned merchandise (or the services have not been canceled by the cardholder).

Chargebacks can usually be prevented by strictly following basic credit/debit card processing protocols. If a card is swiped or dipped and authorization is denied, do not try to run the card a second time. Swiping or dipping multiple times in an effort to authorize a transaction, manually keying in an entry, or calling for credit approval can all result in a chargeback.

• After several years of use, magstripe cards may wear down to the point where your credit card machine can no longer read the information on the card. If this happens and you are forced to manually enter the card data, 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 you have to call for authorization, be sure to record the authorization code, date, time, credit representative’s name, and transaction dollar amount authorized.
• Never estimate transaction amounts. This problem is more likely with tip inclusion in restaurants and other industries where tipping is customary.
• To avoid duplicate transactions, ensure they are only entered once and then completely voided if they are incorrect before reprocessing.
• When submitting sales receipts to your bank, ensure that only one copy is submitted. Also, don’t send a copy to two different banks. Multiple copies of sales receipts can result in duplicate billing and (obviously) a chargeback.
• Ensure that your credit card transaction receipts are deposited promptly. Consumers should see the debit on their account within a reasonable time after the sale, not several months later.
• When necessary, use the Address Verification System (AVS). This is particularly important for eCommerce, mail-order, and telephone sales. Note that many providers charge a small fee every time you use AVS. However, it’s a fraction of what a chargeback will cost you.
• For card-not-present transactions, ensure that you collect the CVC2 and CVV2 card verification numbers. This is the three-digit security code on the back of the customer’s card.

Yes. In addition to the cost of the refund to the consumer, merchants incur restocking and chargeback investigation fees. Dealing with chargebacks also takes time away from running your business, and experiencing too many chargebacks can get your merchant account shut down or converted to a much more expensive high-risk account.

Yes. Merchants can and should respond vigorously to any chargebacks they feel are fraudulent. At the same time, if you know that the error was on your end, it’s better to accept the chargeback and move on.

Each credit card association has its own rules for responding to chargebacks, but merchants generally have 45 days from when the chargeback was filed to respond and present their evidence.

There is no foolproof way to always prevail in a chargeback investigation. However, submitting a clear, legible receipt and any other relevant documentation as part of your response will give you the best chance of prevailing.

No. However, chargeback policies are designed primarily to protect consumers, not merchants. Customers generally win around 80% of all chargeback investigations.