The short answer is: avoid them at all costs! There are three steps merchants should take to avoid chargebacks: prevention. reduction, and recovery.
- Prevention
- Reduction
- Recovery
Chargebacks can be prevented by reducing merchant processing errors. You should also proactively inform your customers about their purchases and whom to contact with any issues. Keep effective lines of communications open, so if a customer contacts you to cancel an order or subscription, that cancellation happens. For more detail on prevention, see “How can merchants prevent chargebacks?”
If the merchant subscribes to dispute alerts, they can receive notification of the dispute and refund it before it becomes a chargeback. This is typically done for fraudulent transactions. You ultimately have to return the revenue from these transactions, but it’s best to do it on your own terms and not with a chargeback, where fees and penalties get assessed.
If the chargeback is unwarranted, the merchant can fight it, but only after the chargeback goes through. Fighting a chargeback is called “representment,” where the merchant re-presents their transaction with additional “compelling evidence” that proves the purchase was legit. Even when the representment is successful, the fees and penalties of the chargeback stand, unfortunately. Still, the revenue is recovered, which is a win.