Chargebacks can quickly turn into a nightmare for business owners. A chargeback refers to the act of returning funds to a customer. The primary purpose of a chargeback is for consumer protection. However, this mechanism is often understood, misused and abused and can have a crippling effect on merchants.
A chargeback occurs when a cardholder requests that their bank reverse a credit card charge that was posted to their account. When a claim is filed, a nonrefundable fee (anywhere between $20 and $100 per chargeback) is then deducted from the merchant’s account. If a merchant has a business type or is part of an industry that experiences high chargeback rates, this can quickly add up and become a big problem.
Banks gauge a merchant’s risk and reliability on the number of chargebacks they receive,” Eaton-Cardone, co-founder and chief operating officer of Chargebacks911, told business.com.
Multiple chargebacks on a regular basis can lead to even greater merchant challenges down the road. Merchants are essentially ‘guilty until proven innocent.’ Chargeback fees and reimbursements are deducted from the merchant’s account automatically – no questions asked.”
Although there are many reasons why a customer might request a chargeback, these are some of the most common:
- The customer did not receive the product or service
- The description of the product or service was not accurate
- The product was damaged or lost during shipping
- Duplicate billing
- Recurring billing was not canceled as requested
- Technical error
How to Prevent and Manage Chargebacks
The good news is that many chargeback scenarios – like lost or damaged products during shipping and billing errors – can be avoided by adopting good business practices and doing due diligence. Partnering with the right payment processing provider for your business type and industry is also key. If your business is considered high risk, traditional processors will turn you away. Thankfully, there are many high risk providers today that specialize in helping businesses secure safe payment processing services and prevent and manage chargebacks.
Before partnering with a provider, make sure you do your research. Is the provider reputable? What do the reviews say? Have other businesses considered high risk felt that the high risk provider understands the challenges they face? Do they offer a full suite of services and support?
The team at eMerchantbroker.com has created a system that helps you break the chargeback cycle and focus on running your business. EMB has partnered with Verifi and their new Cardholder Dispute Resolution Network (CDRN), as well as Ethoca’s alert system to give merchants direct control over resolving credit transaction disputes. By offering merchants both chargeback resolution networks, you can achieve the highest rate of chargeback resolution.