Prevent and Fight Chargebacks for Your Small Business

Small businesses that operate on tight margins can struggle with the added financial weight of credit card chargebacks. With more retail activity moving online, chargebacks are on the rise. Let’s take a look at chargebacks and what situations lead to them so we can help you prevent and fight chargebacks for your small business.

What is a Credit Card Chargeback?

A credit card chargeback is when a payment transaction is disputed by a customer after the purchase. Instead of reaching out to the merchant to resolve the issue, the customer contacts the credit card issuer directly to initiate a dispute which blocks the payment of funds to the merchant. Understandably, chargebacks can occur when purchased items don’t meet the customer’s expectations when a shipped item gets lost in transit but what are some other situations that result in credit card chargebacks?


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Credit Card Fraud

The most obvious and prevalent reason that a consumer would contact their credit card company to block charges is when their card has been lost or stolen or their account has been compromised in some way. Unauthorized account charges are legitimate concerns that require scrutiny by the bank or payment processor and could result in chargebacks if necessary. Of course, the merchant has done nothing wrong in this case, but his or her small business pays the price for merchandise or services purchased illegally.

Impulse Purchases

With most of us stuck at home for long periods during the pandemic, eCommerce businesses are booming. Boredom can sometimes pave the way for consumers to engage in web surfing for all sorts of cool stuff, some of which they may not actually need or be able to afford. For instance, let’s say an eCommerce merchant has a dedicated customer who tends to make weekly purchases from their novelty merchandise site. After a few weeks, that customer realizes they don’t really need the glow-in-dark candelabra they purchased or can’t afford this week’s fuzzy slippers. While it would be ideal for this customer to contact the merchant directly to initiate a return, the reality is that some consumers choose to contact their credit card issuer and block the charge prior to mailing the unwanted items back.

Friendly Fraud

Ever see a charge on your card account with a vague business name that you don’t recognize or from a state you’ve never been to? Friendly Fraud can occur when a customer charges something, but legitimately doesn’t remember the purchase, or when the charge shows up on their credit card statement they don’t recognize the transaction due to an ambiguous business name.

Friendly fraud can also occur if a customer is unhappy with a purchase but would prefer not to deal with the hassle of returning it, whether it be making a trip back to the store or hauling it to the post office to ship it back. In some cases, the client may be unsure of the merchant’s return policy, or possibly they are a few days past the 30-day return period.

High-Risk Businesses

Some industries are more susceptible to fraud and excessive chargebacks based on the products they sell, this includes merchants who offer products such as e-cigarettes, firearms, or adult entertainment. Other businesses that are considered high-risk fall into that category because their revenue and high chargeback rates are subject to the whims of a fickle client base.

For instance, consider the case of online dating business. These businesses earn their profit by providing monthly subscription services. Many customers who are looking for love will provide credit card information up front, to sign up for the ‘free trial period’ that precludes the subscription term. Once the free trial period is over, they may have already lost interest in using the site but the payment processor has charged the monthly subscription fee – a process that was clearly spelled out in the terms of the agreement when the client signed up.

How Chargebacks Impact You as a Small Business Merchant

Chargebacks are costly for business owners in many ways. First, you lose the profit and the product investment from the original sale. Additionally, your bank and/or the payment processor will assess chargeback processing fees for each chargeback incurred. Chargeback fees can be as high as $20 per transaction, quite costly for your business to absorb. There are also restocking and replacement fees which can occur whether the customer returns the item or not.

Even worse, if your business incurs excessive chargebacks you might face bank fines and your business risk could be re-evaluated by the financial institutions you do business with. Too many chargebacks might land your small business in the ‘high-risk’ category which means your transaction fees could increase, your deposits could be withheld, or your processing account could be subject to a freeze or even closed completely.

How Can You Minimize and Prevent Chargebacks?

There are many things you can do as a small business owner to prevent excessive chargebacks. First, you should strive to make sure that the products or services you are selling are high-quality and are transparently marketed. Having a knowledgeable sales staff and providing accurate and detailed information about all of your products or services, as well as including photos and technical specifications if your shop is online will go a long way in keeping your customers happy. Happy customers are more likely to come directly to the merchant to solve their problem, and less likely to initiate a chargeback because an item wasn’t ‘as described’.

For eCommerce businesses, make sure your products are shipped safely and that the customer receives the item in top-notch condition and in a timely manner by partnering with a reputable shipping and delivery service. Choose a service that offers online tracking and provide the customer with a reasonable shipping timeframe so they won’t have unrealistic expectations about when the item will arrive.

Additionally, your site should have a no-hassle refund and return policy that’s clearly displayed and simple for customers to understand. Make sure to include the return policy’s details on printing, as well as emailed receipts so that the information is readily available to the customer. Another tip for an eCommerce merchant is to provide free return shipping. Although it may be financially counter-intuitive, customers are less likely to contact their card provider if the return process is simple and free.

In preventing the potential for chargebacks it’s important to use easily recognizable account payment descriptors so that the customer immediately recognizes your business name on their credit card statement. It’s also a great idea to include a phone number in the descriptor so that the customer has the option to call your business directly before they open a dispute with the card provider.


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Tools to Fight and Prevent Chargebacks

Whether you have an antique shop on Main Street or an eCommerce site, every business owner will deal with chargebacks, so what are some of the tools necessary to fight and prevent chargebacks for your small business?

If you’re running a small business you’ll need to engage in meticulous record-keeping to fight unfair chargebacks. As soon as a questionable chargeback transaction has been initiated, gather all necessary information related to the sale, including transaction screenshots, site terms, refund policy information, etc. Doing so will better help you defend the legitimacy of the charge which could result in the dispute being resolved in your favor.

One of the most important tools in protecting your small business is working with a payment processer that has your back. Payline can help reduce fraud and prevent chargebacks for your business as a licensed reseller of VeriFi’s award-winning Card Holder Dispute Resolution Network (CDRN). VeriFi and CDRN have a global chargeback coverage network that has successfully stopped up to 50% of chargeback activity for their clients.  

CDRN works for you by providing a team of dedicated professionals that have the expertise you or your employees may lack in resolving disputes in your business’s favor.

Finally, the best tool in fighting chargebacks is time. As a rule, when a chargeback is initiated with a credit card company the merchant is the last to know. By the time chargeback fees have hit your account, it may be too late to dispute them. With VeriFi’s Customer Dispute Resolution Network, you’ll receive chargeback notification’s up to 60% faster than the time it takes to hear about it from the bank, and you’ll have 72 hours to resolve the issue before the chargeback is processed.

For more information on CDRN for VeriFi and how Payline can help you fight fraud and non-fraud-related chargebacks, check out this page


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