Avoiding Chargebacks


Chargebacks can happen to any business owner - and while some take preventative measures to avoid them, others ignore them like a skeleton in the closet.

What is a chargeback?

A chargeback is when someone who has purchased from you contacts their credit card provider to dispute the transaction. Sometimes they will contact you first and ask for a refund. Sometimes they will go straight to the credit card company to demand their money be returned.

There are two main types of chargebacks:

Fraud: Stolen credit card information is used to make a purchase without authorization of the cardholder

“Friendly” Fraud: An individual disputes a purchase, despite the fact that they authorized it and received the product. This type is harder to prevent – and the only way to fight it is to produce compelling evidence that the cardholder did authorize the purchase.

Whether you’ve had your own nightmare experience with chargebacks already or you’re awaiting that first big “scare,” here are 4 things you need to know about how they can impact your business.

Chargebacks are a low-hassle solution that will usually favor the buyer.

Even if you go above and beyond to ensure your return policies are client-friendly, filing a dispute with a credit card company is often easier than seeking out a refund from you. When it comes to fraud prevention, your client is usually the #1 priority.

Savvy consumers can take advantage of this (and the rise of online card-not-present transactions) to try out some friendly fraud to recoup their money unjustifiably. In other cases, friendly fraudsters may chargeback due to simple misunderstandings like not recognizing a charge on their statement or being unfamiliar with your policies.

Chargebacks result in a loss of money, time and energy from sales.

You put a lot of work in to get the sale and if you are unable to prove the chargeback is unwarranted, you will have to refund the money.

You’ll never get that or the valuable time you invested back - especially if you are a coach or other service professional. All the time spent delivering the program is gone as well.

And they can cost you financially: Some banks and other providers will charge you additional fees when a chargeback comes over. That can get expensive.

Client dissatisfaction and negative feedback get around now more than ever.

Chargebacks may cost you your good reputation. Word of mouth is so important; people are strongly influenced by members of their community. Chargebacks are an indication that someone might be dissatisfied with your service. You have to consider what they are saying – in-person and on the internet/social media.

A pattern of chargebacks could be an indication you are going to lose future sales and take a hit to your reputation. If chargebacks are coming over because you made an error and charged someone too much or accidentally charged the wrong person, it makes you look disorganized and untrustworthy to your clients.

They have a negative impact on your standing with your payment processing provider.
Lots of chargebacks can result in your provider viewing your account as high risk. This can lead to them requiring a reserve on your account – money to stay there just in case you can’t return funds to a buyer – or it can increase your rates. In extreme cases, it could lead to closure of your account altogether.

How do you prevent chargebacks?
  • Avoid overpromising language: Are you promising benefits you can’t deliver? Buyers tend to quickly recognize the gap between what a brand promises and what actually happens. Higher chargebacks can happen simply because of over-promising in your marketing. Avoid phrases like “Start earning $10,000 a month in 90 days or less” or “Be completely debt-free in 30 days” This opens you up to refund requests and chargebacks as well as complaints from people with heightened expectations.

  • Be transparent about pricing and refund policies: Clearly state your refund policy on any contracts and on your website, on invoices and receipts and let them know how refunds will be processed. Make sure you are both clear on the expectations of cost and the dates payments will be submitted. Remember that if they sign a contract, the information on there can be submitted to the credit card company to encourage them to decline unfair chargebacks.

  • Provide receipts and maintain copies: Doing your own bookkeeping, offering paper invoices/receipts and accepting cash or checks as payment can make it extra difficult to produce evidence that a charge is authorized. Offer credit cards as a payment method so that client and card information is stored in a secure place – and follow-up payments with automated email confirmation receipts.

  • Explain or avoid Negative Renewal Billing: You provide the free offer - “Sign Up Now and Your First Two Months are just $1” -and require a credit card for the trial sign up. After the trial is over, you automatically start billing the client $50 a month unless they get proactive and remember to cancel. Many people don’t realize they will be automatically billed. Others forget and don’t recognize the charge. If you’re going to do this, be transparent and make it really visible on your website what they will be charged. Send email reminders to them once a week or don’t take the credit card information at the outset, then contact them after to see how their experience was and have the sales conversation.

  • Handle customer service issues promptly: If they contact you with a complaint or demand for a refund or adjustment, do what you can quickly to resolve the issue without them contacting their credit card company. Sometimes it’s best to take the hit on the money to be accommodating and avoid negative feedback. Make sure you are listening to feedback from your clients. Search for mentions on social media and negative reviews so you can make changes now.

  • Only work with ideal clients when you can: We’ve seen so many business owners take on a client that they were iffy on who just wasn’t a good fit. Usually your instincts are right when it comes to who is going to give you a hard time. When you find your sweet spot of ideal clients and feel comfortable and confident that you are working with the right people, more than likely you will experience less of this type of friction.

  • Include your business name on statements: If you're using a third party processor like PayPal, use the feature that allows you to put your business name on your clients' card statements. Your merchant account will do this automatically, but also make sure you’re not using a second brand or an old company name. Clients will reflexively want a refund if they don't recognize the charge. Consider using your own name - especially if you have a couple of different brands so it doesn't get confusing for clients.

 Have a chargeback dispute?

   Call DirectPay for more information on how to secure your money after the sale at (800) 326-9897.

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