Chargeback fraud and customer disputes are an unavoidable reality for merchants who process credit cards, including card-not-present transactions. These issues have the potential to create a near-constant source of lost revenue that is extremely frustrating and expensive for business owners. Not only do you lose a sale, but your business also has to absorb a chargeback fee from your bank and the cost of product shipping if you sell physical products.
The good news is, with a few chargeback management tips and some best-practice measures, costs associated with credit card chargebacks of all kinds can be drastically reduced.
Chargeback Prevention Methods
Customer Communication is Key
When it comes to figuring out how to prevent chargebacks, thorough and clear communication with your customers is your first and best line of defense. Most credit card chargeback issues arising from customer disputes can be avoided through excellent customer service, clear communication and transparent policies. Be sure you have very visible notices regarding your payment, return and shipping policies that are displayed to the customer several times during the process of paying and completing a transaction.
Also be sure that item quantities are clearly displayed before the ordering process is complete. Many chargeback disputes aren’t attempts at chargeback fraud, but rather, are the result of customers adding duplicate items to their shopping cart when they only meant to add one. By cutting back on this prevalent cause of chargebacks, you’ll reduce your overall chargeback rate.
Also be sure that sales receipts reiterate all of your policies, and contain clear information regarding return policies along with product, pricing, quantities and other order details.
Clear Product or Service Descriptions
Unfortunately, even with perfect customer service, clear communication and other chargeback prevention methods, there will still be occasional customer disputes for your transactions. These may or may not be valid. For those that are valid, try to use them as learning opportunities to enhance your payment or shopping cart system, employee training, policy notifications or other documentation.
For example, you might have unclear product or service descriptions leading to a higher chargeback ratio for certain items. Very clear and accurate descriptions will help customers know what they are getting, which goes a long way toward preventing chargebacks on individual items and lowering your business’ overall chargeback rate.
Just as with communicating other policies, clear and prominently-displayed return policies help with preventing chargebacks as well, since the policy will be evident from the start. Buyer’s remorse is a common reason for credit card chargeback, and it’s not a form of chargeback fraud, but rather a common consumer behavior. You can lower your chargeback rate from customers feeling buyer’s remorse if your return policies are crystal-clear to every single customer who checks out.
Clear Credit Card Statement Descriptors
As far as card-not-present transactions are concerned, problems often arise when customers don’t understand credit card statement descriptors for the charges. You can provide your business with some chargeback protection by ensuring statement descriptors for your company and products are clear and unambiguous on credit card statements.
For example, if you are selling sporting goods, instead of “Active Business Enterprises LLC,” use a descriptor like “Joey’s Sporting Goods.” Making it clear for your customers where charges are coming from helps reduce customer disputes between you, your customer, and their credit card company, because it ensures that more transactions are recognized by the buyer as legitimate.
Since various credit card issuers have different processes regarding how to handle credit card chargebacks and potentially fraudulent activity, there may be slight variations in how customer disputes are handled. The best route is always to use chargeback prevention measures to prevent chargebacks before they occur.
Keep Detailed Records of All Transactions
As we’ve mentioned, there is no better way to reduce your chargeback rate than with smart chargeback prevention practices and with chargeback protection services.
However, occasional chargebacks—whether from fraudsters or from genuinely concerned customers—are inevitable for every business that processes card-not-present transactions. When the chargeback process begins, you’ll be in a much better position to deal with them if you have detailed records of all transactions.
This includes the time and date, item purchased, quantity, account number, credit card number, and even previous purchase and payment history for that particular customer to help you see if the customer has suspicious or high-risk activity on their account. The more information you have for every transaction, and the easier this information is to access, the easier your chargeback management process will be.
By retaining records of all credit card processing, purchase, and payment information, you will be better equipped to handle all kinds of customer disputes relating to credit card transactions. Having detailed records you can refer to when you need them makes the process of handling disputes and fraud attempts move more quickly and efficiently.
Furthermore, winning a dispute with a customer who initiates a chargeback will require that you provide proof that the chargeback was invalid. For customer-disputed or cases of chargeback fraud to be decided in your favor, you need to provide information supporting your position. The more information you have and the faster you can access it, the better.
When a chargeback occurs, make sure you are familiar with chargeback reason codes from credit card issuers. Keep them for easy reference so that you can refer to them every time a transaction is disputed. This will streamline your chargeback management process, saving your business from losing additional time and money.
As we’ll discuss in the next section, another key method for chargeback prevention is following proper credit card processing protocol. Proper protocols are especially important for card-not-present transactions, such as those commonly performed by online businesses.
Following Credit Card Processing Protocol
Every time your business processes a card-not-present transaction, it opens up a new opportunity for chargeback fraud and customer disputes relating to the charge. There are many steps you can take while processing card-not-present transactions to reduce your chargeback rate, and to make it easier to handle chargebacks when they occur.
1. Card-Not-Present Transaction Best Practices
When taking down a customer’s credit card information, always ensure that payment information for every transaction is entered directly into your payment gateway. Never write credit card information down on paper, and minimize the number of employees you have handling customer credit card numbers. The more streamlined the process is for processing card-not-present transactions, and the fewer hands that are involved in it, the less likely it is that chargeback fraud will occur and that mistakes will be made that lead to customer disputes.
2. Billing & Shipping Address Inconsistencies
In addition, ensure a system is in place to double-check customer’s billing and shipping zip codes before payments are processed. Inconsistencies could point toward fraudulent activity. For example, if a customer enters a billing
address in Russia, but uses a shipping address in Vietnam, this is a red flag that fraudsters are attempting to set your business up for a bogus chargeback.
The best system is one that ensures inconsistencies are checked in a variety of different ways. This could include a feature of your payment processing or accounting system that checks for evidence of fraudulent activity. But it should also include a manual review from an actual human employee, which we’ll discuss next.
3. Manual Review
While it feels time consuming, a manual review of daily transactions will ultimately save time and money by reducing your chargeback rate. By catching inconsistencies and suspicious transactions early, you can get the credit card chargeback dispute process going with the issuing bank and credit card company, cutting down on the amount of time you and your employees waste resolving instances of chargeback fraud.
Chargeback Prevention & Saving Money
The lower you can get your chargeback rate, the more money your business will save by avoiding the inevitable costs of the resolution process. For this reason, it makes sense to invest in chargeback protection services.
Although these may take some time and money to implement, they have the potential to save your business a much larger sum of money in the long run. For every single chargeback that occurs, you’ll incur a chargeback fee. In addition to this fee, you’ll be draining revenue from shipping charges, lost inventory, even on payroll—paying employees to spend time on chargeback management can add up to a very large cumulative cost over time.
By following proper credit card processing protocol, you can reduce chargeback fraud and save money. Similarly, with great customer service and communication, you can reduce customer disputes. Since these are the two sources of credit card chargebacks, combining them will reduce the chargeback ratio across your entire line of products or services. With all of the costs associated with credit card chargebacks, a proper investment of time and money in both of these chargeback prevention measures will mean more revenue, and profit, for your business in the long-term despite the initial costs.
Ask yourself: would you rather spend a little bit of money now with proper chargeback prevention methods and protection measures, or a huge amount of money later dealing with a flood of chargebacks? Preparation and prevention can reduce that flood to a trickle, making for less missed revenue, less wasted time and more profits for your business.
Don’t let sloppy customer service or half-hearted chargeback fraud prevention ruin the business you worked so hard to build.