What is a Chargeback?

• A chargeback occurs when a consumer disputes a charge on their credit card for various reasons:
  • Fraudulent transaction (credit card stolen)
  • Defective merchandise
  • Non-delivery of goods
  • Product not as described
• How Chargebacks Affect Merchants
  • Upon receiving a chargeback, the money is immediately deducted from the merchant's account, with additional chargeback fees of $25–$50.
  • Merchants also lose the value of the product and might incur other hidden costs:
    • Commissions, taxes, overhead, shipping
    • Costs for responding to chargebacks, including time spent on research and documentation
• The Real Cost of Chargebacks
  • For every $100 lost to a chargeback, the actual cost to the merchant can be up to $240.
  • Chargebacks can severely affect a business’s profitability and its merchant account status. Too many chargebacks can lead to account freezes or cancellations.
• How to Prevent Chargebacks as a Merchant
  • The first step is to avoid chargebacks altogether:
    • Ensure accurate product descriptions
    • Confirm proper shipping and delivery details
    • Provide excellent customer service to resolve issues before they escalate
• What to Do if You Receive a Chargeback
  • Assign a Responsible Person: Appoint someone in a leadership position to handle the dispute.
  • Gather Facts:
    • Collect all relevant documents such as order details, customer agreements, shipping information, and tracking numbers.
  • Investigate Customer Interactions: Review communication records (emails, calls, chats) to verify the customer's claims.
  • Investigate Fraud Possibilities: Trace IP addresses, check for patterns, and look for evidence of fraud.
  • Respond Professionally: Craft a well-documented response to the dispute, highlighting the facts and supporting evidence.
• Maximizing Your Chance to Reverse a Chargeback
  • Provide clear documentation of the transaction, including shipping and delivery confirmation, customer communications, and any relevant terms and conditions.
  • If applicable, offer to resolve the issue directly with the customer (e.g., offer replacements, refunds, or repairs).
  • Submit a formal report to your merchant bank with all supporting evidence and request the chargeback to be reversed.
• Timing and Strategy for Response
  • You usually have 2–5 weeks to respond, depending on your merchant account’s policies.
  • Consider waiting for any additional statements from the customer that may help support your case.
  • If the customer is committing "friendly fraud" (trying to get a product for free), consider sending them a letter, documenting the discrepancy between their statements and the facts.
• Additional Tips
  • Friendly Fraud Awareness: Many customers submit chargebacks under false pretenses. If you suspect fraud, look for red flags like social media posts showing the disputed product.
  • Legal Advice: Always seek professional legal advice before sending any letters to customers regarding chargebacks.
• The Importance of Responding
  • Even if you think the chargeback is a lost cause, responding can help protect your business in the future. It shows that you are proactive, and banks may take your documentation into account for future disputes.

This episode offers essential tips and strategies for merchants to understand chargebacks, reduce their occurrence, and navigate the complex process of dispute resolution.