In a world where online shopping is the norm, chargebacks are arguably an e-commerce merchant’s worst nightmare. Every internet-based retailer dreads waking up to a bunch of messages about a customer disputing a previously approved transaction.
Chargebacks are a headache because the burden of proving that the client was rightfully charged solely falls on you as the merchant. Moreover, information about a chargeback never reaches you until it’s too late, and the product has been shipped to the customer. You, therefore, end up losing both the product and the revenue from the sale when the chargeback is approved.
With this article, we aim to shed more light onto the chargeback menace, as well as the steps you can take to prevent them.
Why do chargebacks happen?
A customer can opt to dispute a sale for several reasons. Some, such as incorrect billing, and delivery mistakes lay blame on the merchant, but occasionally, a chargeback can result from dishonest clients, as well as fraudsters.
Whichever the reason, the customer’s bank cannot release payment to the seller until the dispute is resolved.
Chargeback fees
For most businesses, chargeback fees payable to the payment processor are even more stressful than the imminent loss of revenue. These fees are charged immediately a customer disputes a sale, and the merchant has to pay, whether or not they win the case.
Additionally, if your chargebacks exceed 1% of your total sales amount, your business attracts the attention of a chargeback monitoring program overseen by card associations, as well as a hefty fine. In most cases, your processor will just opt to terminate your merchant account.
Prevention measures
Because the cost of chargebacks is heavy, merchants should make it their priority to protect their businesses. And the first step to doing so is to employ good business practices.
For instance, ensure your advertisements are as truthful as possible and have clear terms of service. Avoid clerical errors by counterchecking everything before finalizing a sale. Furthermore, communicate with your customers. If a buyer knows what to expect in the package, they’ll be less likely to request a chargeback.
That said, even the most streamlined business policies will do little to protect you from chargeback fraud. To be safe, therefore, sign up for a payment processing account from a company that provides practical solutions to deal with chargebacks.
eMerchantBroker, for example, accompanies its accounts with a chargeback shield system by “CBS’s Cardholder Dispute Resolution Network (CDRN) is powered by Verifi and the Ethoca alert system, which alerts a merchant the second a customer files a chargeback. This enables them to respond quickly and thus avoid accumulative fees.
*Chargeback Shield is not an insurance service. EMB does not sell insurance and Chargeback Shield is not insurance, it is an alert system.