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

Chargebacks are one of the costs of doing business, but you can minimize your risk by communicating well with customers and keeping good records.

    Frank Kehl

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Frank Kehl

Frank Kehl

Expert Analyst & Reviewer at Merchant Maverick
Frank Kehl has been researching and analyzing merchant services, payment gateways, and international money transfer services since 2015. He has a Bachelor of Science degree from Penn State and a Juris Doctorate from the Ventura College of Law.
Frank Kehl
View Frank Kehl's professional experience on LinkedIn.

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    A chargeback is when a customer who has purchased an item or a service by credit card decides to dispute the charge by approaching the card issuer directly, rather than going to the merchant. 
Since the outbreak of Covid-19, chargebacks have increased significantly.. This is due to a sudden change of circumstances affecting credit card purchases, most commonly involving restaurants, pubs, cafes, theatre, sporting events, travel and hotel accommodation.
    Chargebacks can significantly affect your business if they are not managed effectively. Not only do they incur a chargeback fee which can be between £5 and £15 in addition to the full transaction amount being refunded to the cardholder, but they can affect the level of fees that your business will be asked to pay for accepting credit cards, and in extreme circumstances an excess of chargebacks can lead to the withdrawal of the credit card provider’s service. Chargebacks are distracting and if they become protracted they can create reputational harm to the business from the cardholder.
    The chargeback process should serve as an escalation process in the event that a merchant and a customer are unable to agree. However in practice this is not always the case. The stages of a chargeback are as follows:
    1. The customer contacts the card issuer to tell them which transaction they want to reverse
    2. The issuer investigates the claim to verify what the cardholder is saying
    3. If the issuer agrees they will recover the money from the merchant’s account and provide a conditional refund to the cardholder, and advises the acquiring bank, who in turn advise the merchant
    4. The merchant can review the issuer’s decision and choose to contest it by submitting their own evidence to support their position, for example a delivery signature. This goes back to the acquiring bank, and then on to the card issuer.
    5. The card issuer evaluates what each side has said and if the merchant’s case is considered more persuasive than the cardholder’s they will reverse the conditional refund, concluding the chargeback.
    6. However if the card issuers finds in favour of the cardholder the merchant can pursue the matter further and ask for it to be reconsidered, and provide further evidence if it is available.
    7. The final decision in favour of one party or the other, which is made by the card scheme rather than the issuer, cannot be challenged further, other than through the process of bringing the matter before a court.
    It’s also important to note that some customers will both request a refund and pursue a chargeback, which can result in a double charge against your merchant account. Whilst there are mechanisms to recover the second charge, the better approach is to take an attentive and proactive approach to refunds. If the customer suggests that they have already spoken to their card issuer then it is sensible to contact the issuer to establish the status of the claim before issuing a refund directly.

    Chargebacks are far more common in online transactions where there may be a number of parties involved in the transaction and the delivery process, than in physical stores where an item can be seen and inspected before it is paid for and taken away. Chargebacks can take place for many reasons, such as because an item has been wrongly described by the merchant, because the item has not been delivered, because a subscription has auto-renewed when the customer had intended to cancel it or when a customer’s card has been used fraudulently

    It is unlikely that a merchant will be able to avoid chargebacks entirely, although there are ways to minimise them. Issuing a refund, if it is warranted, is a far quicker and more cost effective route to resolving an issue and maintaining a customer’s trust. However there will be occasions where the customer goes directly to the card issuer in the belief that it will be simpler, or easier to make their case.
     It is important to be as full and frank in your product descriptions, and your terms and conditions of sale, as possible. It is also beneficial to be as open and available to your customers as possible to discuss any concerns they may have, and through as many communication channels as you can support, such as email, phone.

      This comment refers to an earlier version of this post and may be outdated.


      The only way to fight back against fraud charge-backs is to only offer Zelle. That’s what we did and it was best decision our business ever made. Product demand is strong enough that we don’t need to offer credit card as payment option. Our life is exponentially better now. We still deliver an amazing product and great customer service but we refuse that play that silly game of charge backs because buyer wanted something free.

        This comment refers to an earlier version of this post and may be outdated.


        I am curious as to why we merchants are penalized regardless. We have to pay the chargeback fee even when we “win”. Who decided that?! The “losing” party should be charged the fee – could eliminate some fraudulent chargeback attempts by unreasonable customers. Who could start the ball rolling to get this policy change in motion?

          This comment refers to an earlier version of this post and may be outdated.

          Jessica Dinsmore

          Hi Melissa,

          Chargeback fees are something that you have to pay to your provider to compensate them for the time & money they have to spend investigating the chargeback and representing you. It’s like hiring a lawyer – you have to pay them whether you win or lose your case. CDGcommerce is the only provider we are currently aware of that will refund your chargeback fee if you prevail. Providers really don’t have any mechanism for going after a customer for chargeback investigation costs, short of filing a legal action against them. Unless the underlying transaction was for a really large sum of money, this is not going to be economically practical.

            This comment refers to an earlier version of this post and may be outdated.


            Every chargeback I’ve received has been a fraudulent attempt by the consumer. I provide a service where at the end of the documentation is a signature stating that the job was done to completion.

            I’ve always have proof of services via contract and a long drawn out explanation.

            I’ve actually had physical proof, texts messages citing why the consumer is upset. I’ve had underlined policies and procedures highlighted to let the other party know that the consumer is going about their complaint the wrong way.

            I’ve done everything possible that would be a slam dunk in a mediation setting or court of law and I still get the report back that I’ve lost. This has changed since 2014. I use to be able to send a simple scan of an invoice with signatures.

            I think that it’s negligence one one parties part to read my rebuttals because they come highly loaded with facts and visual proof. Sometimes I win, but the times in which I lose, you can tell that no one bothered to read my explanation.

            This is where I’m seeking some type of legal help or something. The credit card issuer’s identity remains hidden and protected.

              This comment refers to an earlier version of this post and may be outdated.

              Bernadette Cieslak

              So what do you do when you lose a dispute? I have a situation that just happened and I submitted 8 pages of documents in my favor, should have been a slam dunk, but I lost. Now what can I do?? My merchant account is worthless to help me.

                This comment refers to an earlier version of this post and may be outdated.

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