Forced refunds requested by your customer to their bank, known as chargebacks, can pose a very real threat to your company’s finances, and its reputation. Although you will never eliminate chargebacks entirely, taking strong preventive action can go a long way toward keeping them to a minimum.
Check with your card processing company to be sure you understand their requirements for accepting purchases made with plastic. For instance, they may mandate that you check the expiration date and enter the CVV code on the back of the card for in-person payments. For online or phone deals, you may also need to get additional data or run the purchase through an authentication service such as Mastercard SecureCode. It is also a good idea to request proof of delivery, which prevents buyers from fraudulently claiming that they never received the product.
Use a clear payment descriptor.
When a customer receives their bill, they will usually look down the list of charges. If the merchant’s payment descriptor – the name and other information about the company – differs from what they expect, they may dispute the charge. Therefore, be sure yours matches your store name, instead of something more obscure such as your parent company title.
Make your terms clear.
Put all of your terms and contractual obligations in writing in a way that customers can understand them. Be sure to specify exactly what will be charged and when, and provide multiple ways that customers can ask questions before they sign the document electronically, or in person.
Provide excellent customer service.
An integral part of your commitment to your customers is to address their concerns quickly and thoroughly, especially as regards disputes. In many cases, prompt attention can result in a solution that prevents chargebacks. Even if the process goes on, your conscientiousness can make a difference with your customer, and even with your processing company.
Watch for warning signs of fraud.
Although the cause of many chargebacks is legitimate, a significant number are initiated by people with no other intention than to perpetrate fraud. Stop them in their tracks by being vigilant about warning signs. These include unusually high purchase volumes or big-ticket items, charges from fraud-prone countries, discrepancies between the customer’s billing and shipping addresses, and incorrect security codes. If you suspect something fishy, contact your payment processor immediately.
Train your staff.
Unless you are a one-person operation, you need to communicate your anti-chargeback knowledge to your trusted associates if you want round-the-clock protection. To that end, explain the red flags that could signal suspicious customers. Also, be sure your staff is well-versed in credit card protocol, including the need to always verify signatures on card-present transactions. Finally, encourage them to come to you with any concerns or suspicions that may arise.
Data security standards prevent you from storing customers’ sensitive payment information. However, that does not prevent you from keeping records of transaction dates, amounts, and authorization details. If you do, should a dispute occur, you will be better equipped to respond to it.
If you are in the right and you have the time and bandwidth, don’t cave; combat the forced refund. After all, having too many chargebacks can lead to additional fees from your payment services provider, and may even result in the closing of your merchant account. Although it represents an expense, hiring a chargeback consultant who is expert in the ins and outs of these procedures can also be an excellent strategy, particularly if the disputed amount is high.
In one sense, chargebacks are an inevitable side effect of doing business. However, it is in your best interest to minimize them as much as possible. Being proactive, communicative, and transparent will enable you to eliminate many of them.