Credit Card Chargebacks and What They Mean to Your Business | Biztbuy

As a merchant, it is extremely important to understand all of your options and responsibilities when it comes to making transactions with your consumers. In the United States, the chargeback system is used as a form of protection for your customers to ensure that they are treated fairly during a transaction.

While you may have heard of the term before, it is important to learn the finer points of what a chargeback is and what it means for your business so that you keep your finances in the best shape possible moving forward.What is a Chargeback for Credit Card Users?A chargeback happens when a credit cardholder requests a reversal of a transaction, after the fact.

Credit Card Chargebacks

This can be done for a variety of reasons but is most often associated with fraudulent activity. For example, a consumer may open their credit statement and see an unauthorized charge on their account. They will then contact their card issuing bank to recoup the lost funds. The transaction will immediately be reversed, and the monies withdrawn from the merchant’s checking account. A chargeback notice is then mailed to the merchant, and the merchant will have 30 days to respond and attempt to dispute the chargeback. In the case that a report of fraud proves that the transaction is not legitimate, the merchant is solely responsible for the reversed transaction and paying a chargeback fee to the processing bank.

Merchants are also held liable when a refund credit is not posted to a customer’s account after they return unsatisfactory merchandise.Chargebacks may also be initiated by the customer for an item not received.

This usually happens when they order an item with their credit card, but either they receive the wrong order or it does not get to them at all. Technical issues, such as a card being charged twice during payment, are also reasons for chargebacks.

However, there is recourse for the merchant: When a customer buys an item in your store and signs an invoice or receipt for their purchase, you can show documentation that proper steps were taken on your end. If a chargeback request is found to be invalid, usually when a customer is fraudulently attempting to regain the money they spent, and you have documentation to prove the order was valid and the customer received the product or service, the reversed monies are awarded back to the merchant.

Preventing Chargebacks for Your BusinessIt is estimated that only 21 percent of chargebacks filed globally are found to be in the merchant’s favor. This means that avoiding them at all costs is the best way to keep the expenses from piling up. By accurately representing your items for sale and providing the best customer service possible, you lessen the risk of customer’s rushing to their issuing bank for a chargeback.

You must also take steps to reduce the likelihood of processing fraudulent transactions as a chargeback means you will lose out on both the sale and the inventory.It is a good idea to clearly display your return policy in-store and online, and also note the shipping options that are available for orders. Use order and shipping confirmation emails to communicate the transaction with your customer, and be wary of multiple orders tied to different credit cards that use the same shipping address.

By law, your credit card customers have 6 months to file a dispute of charges made to their account. This means that your sales can be reversible during that time, so be sure to keep all documentation safe to support your side in a dispute. Be sure you know the rules of a chargeback and the associated steps taken by your card processing bank so that you can best avoid them and keep your company’s assets secure.Nathan Conley is a senior account executive at Durango Merchant Services, LLC, a world-leading consultant group and merchant account services provider.