Businesses Can Create a Chargeback Prevention Plan With These Helpful Tips

Sep 28, 2022

Create a Chargeback Prevention Plan With These Essentials

Within the payments industry, chargebacks are a common occurrence. In fact, even if you’re not in the payments industry, you’ve probably come across them at least once. A chargeback is when a customer disputes a purchase with their bank or credit card company. This dispute causes the money they paid to be returned to them along with any applicable fees.

The problem is that merchants are the ones who end up paying the price and for smaller businesses, these chargebacks can be enough to put them out of business. Chargeback prevention should be a critical part of your business plan.

There are a lot of ways that merchants can reduce the number of chargebacks they receive. Here are some helpful essentials to get you started.

What is Chargeback Prevention?

A chargeback is a dispute between a customer and merchant over a transaction. The customer claims they did not authorize the purchase, and the merchant is liable for it. If the claim is valid, then the merchant loses their sale and must refund the money. They also have to pay an additional fee to the credit card company on top of that, which can total up to 25% or more of what they lost from their original sale.

Chargeback prevention is the process of preventing customers from requesting their money back. This can be done through better fraud prevention, better store policies, clear communication, and more. The right chargeback prevention strategy can drastically reduce the number of disputed transactions and help businesses save money. Businesses with too many chargebacks can be seen as higher risk and may end up paying extra for credit card processing fees in the long run if they don’t have a good prevention strategy.

How to Reduce Chargebacks

Online businesses are especially at risk of chargebacks. Because you cannot see the customer, it’s hard to determine who actually made the purchase from your business. This doesn’t mean you can’t have a good strategy to prevent them. If you’re not seeing a reduction in chargebacks, there are four things you can do to help reduce them:

Revise Your Fraud Prevention Strategies

Fraud is the primary reason why people request money back on their credit cards. When someone uses a credit card that is not their own and the owner of the card finds out, the card gets reimbursed for the charge, and the business is not only out the money, they are out the product and additional fees as well. Some businesses don’t worry about these, because they end up being a cost of doing business. Other companies, however, can’t afford to take too many hits. Not only that, but the bank can take away your ability to accept credit cards for business if you become too high risk.

Improve Customer Service and Communication

Communication comes in many forms. On websites, it’s important to communicate the size, color, and texture of an item. Not only that but also provide images that portray the product or service in a real way. This will reduce the number of returns of products. Another option is to improve customer service and response time for customer inquiries. This can help the customer to understand what charges on their credit or debit card are for and can help them remember if it’s something they purchased or not.

Train Employees on the Proper Protocols for Handling Chargebacks

Your staff can be a great buffer when it comes to reducing or eliminating chargebacks. Your customer service team should be trained on how to work with customers for disputes. Additionally, you can teach your team how to identify fraudulent purchases. For instance, products go to one location, but the credit card address is different.

Employees can also be trained properly to reduce the risk of merchant error when processing orders. Additionally, your staff will need training on how to respond to credit card companies when a chargeback has been requested. Any documentation you have that can show the purchase was legitimate and that it was sent to the correct customer can help you avoid chargebacks as well.

Reduce False or Fraudulent Reviews and Ratings

Another way to prevent chargebacks is to make sure the reviews you have online are legitimate. This will help customers to learn the good and the bad of the products or services you sell. When you reduce fraudulent reviews, customers will know exactly what they are getting so that when it arrives in the mail, they are less likely to return it or request money back from their credit card. This not only helps prevent chargebacks, but it also improves customer relations and helps you build customer confidence in your brand.

Post-Transaction Chargeback Prevention

There are some additional ways to reduce the number of chargebacks after a transaction has been made.

  1. Provide a clear return policy. If a customer is unsure about whether or not to purchase an item, the last thing you want is for them to worry about getting their money back if they’re not satisfied. A clear and easy-to-understand return policy can help ease that fear, giving your customers peace of mind as they make their purchases.
  2. Give refunds promptly. When a customer acts in compliance with your return policy, it’s best to give a return right away. This can not only help to improve the customer experience, but it will also reduce the costs to the business. If a refund takes too long, a customer may request a chargeback from their bank instead, which costs your business significantly more money than a simple return.
  3.  Provide a clear shipping policy. When people buy online, they often assume that their order will be shipped quickly—and this expectation can lead to frustration if it isn’t met. A clear shipping time frame will go a long way toward preventing chargebacks from unhappy customers who ordered something but didn’t get it within the timeframe they were expecting.
  4.  Improve your communication. Be sure you provide an adequate level of service via phone or email in response to any inquiries from customers concerning orders submitted through your website. This includes responding within 24 hours during business days Monday through Friday and being responsive to their concerns. Make it easy for them to return products if necessary. 

What Does the Chargeback Process Look Like?

As a business, it’s important to understand the steps involved in the chargeback process. They typically go something like this:

  • The customer files a claim through their credit card company or bank. Most customers have up to 3 months to file a chargeback claim.
  •  If the bank approves their claim, the money is refunded to them.
  • The money is then debited from the seller to cover the cost of the chargeback. Additionally, the seller will pay a fee of $5 or more on top of the money that was debited.
  • The business can dispute the chargeback for a certain amount of time if they provide evidence that the initial transaction was valid and was not done through fraud or merchant error.
  •  If the business proves its case, the money, and the fee will be returned to them from the credit card company.

What Happens When You Don’t Prevent Chargebacks?

The chargeback process alone is enough to convince most businesses that they need a chargeback prevention plan. Chargebacks can be a real headache for your business, especially if it’s a recurring issue and you don’t know what to do about them. Chargebacks cost businesses more than time. Here are some of the effects of chargebacks on your business.

Businesses Lose Money

The bottom line is affected in multiple ways if you have a lot of chargebacks. You end up being out not only on the cost of the product but also the money you had to return. Plus there are additional fees to pay as well.

Risk Losing Merchant Account

Businesses are at risk of losing their merchant accounts when their chargeback ratio gets too high. This means that a business that can’t prevent chargebacks will no longer be able to accept credit cards. While there are some options for these high-risk businesses, they often come with higher fees and more restrictions.

Wastes Time

The amount of time is takes to prove that a chargeback isn’t valid may not be worth it. Some businesses don’t even bother disputing them because they know that the process is long and is no guarantee for them to get their money back.

Create a Chargeback Prevention Strategy For Your Business Now

By using the above tips, you’ll reduce the number of chargebacks that you receive, improve customer confidence, and save time and money. Because chargebacks are costly to merchants, it’s important for businesses to take steps to reduce the number of chargebacks they receive.

Go through your website and make sure your return policies are clearly communicated, that the product description matches what the customer will receive and that you have good fraud prevention policies in place. If you use these tips and strategies regularly, your business will be much more successful at recovering from chargeback situations and will receive fewer of them over time.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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