A chargeback, simply put, is when a credit card company withdraws money from your account and puts it back in the consumer’s account after a dispute. Generally, such an action occurs for one of the following reasons:
- The credit card was used without the consent of the holder
- The customer returned the product and was not refunded
- The customer never received the item they purchased
- The customer received an item that was damaged, defective, or did not fit the product described and was unable to obtain a refund
- Technical problems between the merchant and the bank led the customer to charge twice
- Issues with the authorization process
Whatever the reason, chargebacks can be a costly and time-consuming problem, the merchant – of course you will lose that sale, pay any shipping costs, chargeback charges, and incur damage to your credit rating . A high chargeback rate can even jeopardize your company’s ability to process credit card transactions as a whole, which could be a devastating blow to your business. Therefore, chargebacks should be systematically reduced whenever possible.
How to reduce chargebacks from customers
1. Use a name that customers recognize
The most common reason for chargebacks is that customers don’t recognize your company name on their statement or invoice. Therefore, it is vital that you make sure that your credit card descriptor is the name of your business.
2. Respond to ASAP charge inquiries
This starts with creating an easy-to-find (and locatable) method for confused customers to contact you, be it a phone number or email prominently displayed on your website and / or packaging. Although some aggrieved customers may immediately contact their credit card company to issue a chargeback, many try to contact you first, so make sure you are available and give these incoming messages a high priority.
3. Provide detailed descriptions of your product
The best way to make sure people don’t want their money back is to make sure they know exactly what they are ordering. For online ordering, this means providing photos, previews, or screenshots of your product or service whenever possible, as well as listing a detailed summary of what comes with the purchase price.
4. Collect CVC2 and CVV2 verification numbers
Most Visa, MasterCard, and Discover credit cards have a 3-digit security code on the back. For American Express cards, a four-digit security code will appear on the front. These codes are intended as an additional security measure to prevent fraud, so it should be a policy to always ask for them when processing credit card payments. Visa reports that using these codes can reduce chargebacks by up to 26%.
5. Collect signatures upon delivery
If you are delivering physical goods, try to use carriers that require the recipient’s signature at the time of delivery, and be sure to keep a copy of all proof of delivery for your records. These records can be useful if you need to prove that a particular product was delivered.
6. Look for fraudulent orders
While you won’t be able to sniff out all the scams, there are a few key warning signs to be aware of before confirming an order:
- A vast majority of fraudulent orders come from foreign countries
- Multiple orders for the same expensive product can often indicate fraud
- A customer who chooses to pay a large expense for overnight shipping may indicate fraud
7. Be clear about refund and return policies
Clarity about returns is just as important as accurately describing the product. In a physical business environment, make sure the terms of sale are written on the receipt (the closer to the customer’s signature, the better) and that you display your return and refund policies as conspicuously as possible, close of the cash register is ideal. For online sales, make sure customers click «I agree»To their terms, conditions and return policy before completing your purchase.
8. Offer refunds
Generally, extremely aggrieved clients will get their money back in one way or another. This means that it is generally better for you to offer full refunds to dissatisfied customers. If money is tight and high repayments risk disrupting your income, consider offering a more limited refund. For example, some companies only allow customers to return the item within 3 days or to exchange items for store credit. This gives the customer the opportunity to return the item while minimizing the risk of loss to the business.