Preventing Chargebacks

A chargeback is when the holder of a credit card contacts the credit card issuer and disputes a charge on his account. Most times this occurs if the credit card number was stolen and the holder didn't make the charge, or the holder did make the charge, but either does not recognize the charge, or doesn't remember making it. With e-commerce businesses, this can happen if your merchant account is not in the same name as your store and shows up on their bill as something other than your store name.

E-commerce businesses are more susceptible to chargebacks because the card is not present at the purchase point. You are not seeing the card and getting a direct signature.

Chargebacks can be a frustrating and costly occurrence even if it's found in your favor. Most merchant accounts charge around a $35 fee regardless of the outcome. They are even more costly if you already shipped the items purchased.

Fighting a chargeback is difficult because the credit card companies stack the odds in favor of the consumer. Once the customer disputes a charge, it is up to the merchant, within the brief allotted time, to prove that the customer purchased and received the item. Even then, there are ways the customer can successfully dispute the charge.

If the credit card issuer does find in favor of the merchant, there is no penalty to the customer for initiating one. If a merchant gets too many chargbacks, he can lose his merchant account.

Overall your business policy should be to avoid chargebacks. Here are some ways you can do that:

Credit card issuers will not find in your favor if you did not ship to a credit card authorized address, usually the billing address. To avoid chargebacks, ship only to the billing address, or make sure that the order is legitimate before shipping elsewhere.

If you are suspicious about an order, do not ship it until your suspicions have been satisfied.

Ship packages using a means so that you can prove they were delivered. If the merchandise is expensive, make sure you require a signature on delivery to confirm the person received it.

If you receive a chargeback notification, contact the customer. Many times the chargeback is due to confusion over the billing name, or the customer not remembering he/she placed an order. If the chargeback is because the customer is not happy with his order, work with him directly to resolve it.

Some businesses will just refund a customer if they complain and the refund is less than the $35 chargeback fee. The downside to this, besides losing the refund amount, is that if your store gets a reputation for doing that, people will order from you knowing they will be refunded and rip you off.

While chargebacks are frustrating and time consuming, if you are doing business honestly and keeping an eye out for fraud, you should get less than one to two chargeback claims a year.