Quick Tips on Handling Chargebacks

Quick Tips on Handling Chargebacks

Chargebacks are a costly and unfortunate fact of life for many businesses that accept credit cards. Teaching your staff that interface with customers on best practices for reducing chargebacks is critical to keeping these costs low.

Credit card chargebacks happen when a customer contacts their credit card issuer to dispute a charge. Often, the first stage is what’s called a “retrieval request”. This may occur when a customer doesn’t recognize your business name on their credit card statement. Retrieval requests can cost you from $5.00 or more, depending on your processor.

If an issuer deems a dispute valid, your merchant account is debited for a credit card charge that had previously cleared -- and you're out the money, plus a chargeback paperwork handling fee from the processor that may range from $5 to $25, until you rebut the dispute in writing.

A few of the primary reasons for disputes include:

  1. Customer didn't receive an item they ordered.
  2. Feels that a product or service was substandard or not what it was represented to be.
  3. Was incorrectly billed.
  4. The transaction was accidentally run more than once
  5. Didn’t receive a requested refund
  6. Doesn't recognize the charge on their credit card statement.
  7. Customer’s card was used fraudulently by a third party, using the customer’s identity

Businesses that accept payment from customers over the phone are particularly vulnerable to chargebacks, especially on products or services that are not delivered until some date in the future and includes specific cancellation and refund policies.

The card issuing bank will not accept audio or video evidence that you communicated your cancellation/refund policy to their card holder. Only a signed customer invoice, with those policies clearly stated will be accepted as evidence of the customer’s awareness of these policies. Online transactions should include digital evidence that a customer read and clicked an “I agree” button before payment was made, to avoid losing a chargeback.

In the end, the card issuing bank, not your processor, is the entity that either accepts your rebuttal or the customer’s reason for the dispute, so your evidence needs to be compelling to avoid losing a dispute.

This list of seven ways to reduce the risk of chargebacks can help guide the process.

  1. Card Present Transactions. For card present transactions, in which the card is swiped or dipped in person, be sure to check the signature on the back of the card and ask for additional ID if you feel the presenter is questionable. If you process a card that contains and EMV chip, as “swiped” (because you don’t have a chip card reader) you will lose any dispute filed on that transaction that states that the card was fraudulently used. Card issuing banks will only accept the digital evidence transmitted during the transaction that indicates the card was dipped.
  2. Card Not Present Transactions. Whether processed online, or over the phone, be sure to have Address Verification Services (AVS) activated on your account or gateway, and request card security codes (CVV2) to enter when processing a transaction. The AVS feature requires the customer to provide the numeric address, and/or zip code registered to the card to allow the transaction to be accepted. Both are purely fraud detection features and do not have any impact on the interchange fees charged on the card. Some processor do charge from $0.01 to $0.05 per transaction for this feature, but that may be a small price to pay if you’re shipping a product based on the approval of the card. Beware of shipping product to an address that is dramatically different than the actual card being used.
  3. Use a clear payment descriptor. Often, retrieval requests and chargebacks have to do with unclear payment descriptors. Your payment descriptor is the merchant name and other identifying details that appear on the customer's credit card statement when they make a purchase from you. If you list a different name than what the customer might recognize -- a parent company name instead of your store's specific brand name, for example -- the customer may not recall the purchase. Verify what this descriptor is with your processor to be sure.
  4. Get it in writing. If you’re providing a service in the future, but taking a payment now, consider sending the customer a credit card authorization form that contains your contract terms and refund/cancellation policy for signature. Or use an online invoicing program that requires the customer to enter their own card number and click an “I agree” button acknowledging receipt of your refund/cancellation policies. The customer’s signature on something is key to winning these disputes. Sometimes, taking a partial deposit and getting a card read at time of delivery of your service can help you win a dispute, also. It give you evidence that they were at your place of business.
  5. Deal with customer service issues promptly. Your credit card processor will likely offer chargeback notifications so you can find out quickly if a customer is questioning or disputing a charge. Check to see if you can receive email alerts from your processor that would notify you immediately when a retrieval request of chargeback is filed. If you can respond to a retrieval request immediately, you can often prevent it from becoming a chargeback. Remember that the card brands have specific time-frames for rebutting a dispute. 
  6. Keep good records. Keep accurate records of customers' credit card transaction dates, amounts and authorization information, in case you need them to fight a chargeback. If you have signed documentation such as receipts or contracts, that helps, too. There's not much you can do if you have been the victim of a fraudulent purchase, but this paperwork can help you win a dispute against a customer who is unfairly trying to take advantage of the chargeback system or who may have simply forgotten the purchase.
  7. Fight back when it makes sense. Each chargeback could cost you an additional fee. Plus, if you have a history of chargebacks, it could hurt your relationship with your merchant account provider. You may not choose to devote the time and resources to fighting every chargeback, but if you think you could win a case, it may be worth pursuing. If it's too much to do on your own, contact your agent that setup your merchant account or consider hiring a chargeback management firm to help you, but weigh the cost of these firms against what you could reasonably do on your own.

General Chargeback Time Limits

  1. Merchant Rebuttal - 10 days to reply (30 days)
  2. Customer Dispute - up to 120 days
  1. Merchant Rebuttal - 10 days to reply (45 days)
  2. Customer Dispute - up to 120 days
  1. Merchant Rebuttal - 10 days to reply (45 days)
  2. Customer Dispute - up to 120 days
American Express
  1. Merchant Rebuttal - 10 days to reply (20 days)
  2. Customer Dispute - up to 120 days
Note that these time frames can change depending on the reason for the chargeback. If the service is future delivery, the dispute time starts at time of delivery. The rebuttal period to respond is shortened to allow entire process to complete.
We will get involved to help you handle any dispute that you need help with. We also have an insurance program that might help if you’re seeing significant numbers of chargebacks due to an inability to process EMV chip cards. Call either Adam or Kim to learn more.

    • Related Articles

    • Testimonial from The Blend

      We are a brand new quick serve restaurant. Adam met with us before we opened and helped us determine the best fit for our needs. The POS we started out with did not deliver all that was promised so he helped us transition to a different POS in the ...
    • Testimonial from WI River Outings

      While WRO is a new customer with PATH, we’re highly encouraged by their quick response to questions (and issues if we had any at this point) and open communication. We have been through 2 previous processors during our 15 years in business and we had ...
    • How can I defend myself against a chargeback?

      If you receive a chargeback or retrieval request you should: Follow the instructions on the notification Respond by the due date listed on the notification Provide a written reply addressing all of the cardholder’s concerns Provide copies of all ...