Guide to Preventing Chargebacks

Chargebacks can make or break a business. Too many, and it can eat into your bottom line, or worse, you end up with a banned merchant account. That’s why it is absolutely crucial to be proactive when it comes to staving off chargebacks.

To understand how to prevent chargebacks, it’s important to know the following types and categories of chargebacks.

Legitimate Chargebacks:

  • Incorrect Item / Item Not as Described / Faulty Item
  • Unrecognized Charge
  • Unclear Terms (such as trial offers and rebilling schemes)

Fraudulent Chargebacks:

  • Unauthorized transactions (stolen credit cards)
  • People charging back to get the item or service for free

Preventing Legitimate Chargebacks

For legitimate chargebacks, you can quite a bit to reduce the chances of these occurring. Whenever I start a new business I do the following:

  • Make sure all of the items/services are well defined, clear, and are of good quality. For ecommerce, I make sure to have photos of the products along with making sure the information about each product is valid and accurate.
  • For the check-out page, I make sure it clearly lists what they are paying for, along with the associated charge. It’s also advisable to have them click a checkbox verifying they reviewed the purchase before it is made.
  • It’s also advised to have responsive customer service such as:
    • Social media presence
    • Dedicated phone number, support chat, and business address.
    • Clear refund policy (if your margin can support it, have a satisfaction guarantee)
  • Make sure your billing descriptor (what will show up on a customers statement) is accurate and detailed. The descriptor should tell them where they bought from and what it was for. The less confusion the better.
  • Make sure the terms are clear, if the customer is going to be rebilled/billed when a trial lapses, let them know several times.

Credit Card FraudKeep in mind, some of those bullet-points don’t apply to every business model, so make sure to tweak it based on your needs. A lot can be done when it comes to legitimate chargebacks, and a full refund and/or replacement is always better than a chargeback. So try to address your customers needs and have an outlet for them to communicate – that way their first option isn’t to chargeback.

Dealing with Fraudulent Chargebacks

Fraudulent chargebacks are a bit more insidious – and you need to understand how fraudsters operate in order to stop them.

When it comes to customers filing chargebacks for unauthorized chargebacks it is either because they want it for free, or because someone stole their credit card and purchased the product/service with it.

For the first instance you only do so much – It is recommended to collect as much information as possible on each customer and proof of delivery/service rendered so you can counter their chargeback.

Certain factors such as repeat addresses, different billing and shipping address, invalid email addresses, and other red flags can be an easy way to identify fraudulent transactions that are likely to result in a chargeback. Anti-fraud software can certainly help automate many of the tasks involved with manually reviewing every order.

There are several prominent anti-fraud services, but it is recommended to test a few services and see what works best for your business. Not all businesses are the same and you want to make sure you have the best anti-fraud service in place for your business’ needs.

Overall, if you implement the precautions mentioned, you should see a drastic decrease in the amount of chargebacks and fraudulent activity on your website. Gone are the days of worrying if your merchant account is at risk. Set these measures up and you can say goodbye to chargebacks.

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