Chargebacks are a grave threat for businesses of every size, but for small businesses, even a few chargebacks could quickly evolve into an existential threat. Not only do merchants stand to lose revenue from the sale, but they will also have to pay chargeback fees and may lose inventory as well.
Big companies, meanwhile, often have well-established relationships with credit card networks and banks and have the resources to set up chargeback teams. Thus they typically have an easier time dealing with chargebacks and getting fair representation. Smaller companies often lack crucial resources, but by using the right dispute management tools, it’s possible to greatly improve your odds of winning a chargeback dispute.
Why Do Customers File Chargebacks?
Peruse Reddit and you’ll come across many discussions, often heated, regarding chargebacks. The frustration of many business owners and managers is palpable. Yet you can find silver linings as well. Many redditors have found success by using dispute management software, like ChargebackHelp, to control and mitigate chargebacks. Being proactive is crucial because of the high stakes, notes one redditor on this Reddit post regarding chargebacks to small merchants:
“Credit card companies have an incentive to side with their customers to keep them happy. Also every time I get hit with a chargeback, I get hit with a chargeback fee as well so there is that incentive for the CC companies as well.”
– Redditor
Customers typically need to provide a reason to file the chargeback. In some cases, the customer’s claims may be legitimate, but often, they’re just excuses pushed to score free products or otherwise engage in fraud. Regardless, it helps to understand common reasons why customers may file chargebacks.
Failure to Deliver Products
If a merchant fails to deliver their end of a bargain, say not delivering a product or falling far short of customer expectations, customers may turn to their bank for a chargeback. Sadly, some customers won’t even reach out to the merchant first to resolve the issue, but instead immediately pursue a chargeback, putting merchants in a tough spot.
In other cases, customers will claim that an order didn’t arrive when it actually did. Sometimes customers will actually receive a product, use it, show it off on Instagram and other social media sites, be happy, and then file a chargeback anyway. In these cases, the customers may be committing fraud. (Fortunately, if the customer posts the product on social media, you’ve got compelling evidence.)
Falling Short of Expectations
Often, customers will claim that a product didn’t match the description. In some cases, this is just a convenient and hard-to-disprove excuse. That said, if a merchant is over-promising and under delivering, chargebacks could quickly skyrocket. Should a company promise quick delivery and painless installation, for example, but the product arrives late and then there’s a delay before the installation crew gets to work, the cardholder may grow dissatisfied enough to file a chargeback.
Bypassing Return Processes and Other Hassles
If making returns is difficult or expensive, a customer may simply turn to their bank out of convenience or to save money. After all, from the point-of-view of the cardholder, a chargeback basically functions as an unauthorized refund.
Also, when customers do reach out, it’s crucial for businesses to engage them quickly or else they could turn to their bank. A slow response could have some customers worried that they won’t be able to return the product, or they may simply need the money right away. That said, ask merchants and you’ll often hear stories of unreasonable customers.
“Here’s a good one for you. Someone places an order gets it 2 days later reorders same product (food item) that next order gets delivered and then open a charge back for both orders. So now we contact them and say hey we’re a really small business and we see you opened 2 charge backs on us for items it looks like you got. That’s really crappy for us. They basically ask if there’s a way they settle this without the bank and that yes they did order both and receive them but they didn’t have any money at the moment so they did a chargeback.”
– Redditor
Preventing Chargebacks
As with many things in life, prevention is often the best course. Merchants that leverage effective chargeback prevention tools and strategies can ward off many if not most chargebacks. This will safeguard revenues and the bottom line. It can also prevent chargeback fees and rising processing costs
Thus, when and where possible, businesses should prevent chargebacks. Requiring signatures for deliveries, using clear billing descriptors, and setting appropriate expectations, among other things, can go a long way. It’s wise to work with experts if you don’t know how to go about preventing and reducing chargebacks.
Use Clear Billing Descriptor
Some small businesses make the mistake of using unclear billing descriptors. Let’s say a business owner owns a restaurant called John’s Diner, but when billing the merchant uses a different name, like Amazing Acme Food Group. A customer might not recognize the latter and could file for a chargeback. Cardholders may be left confused and providing clarity may nip chargebacks in the bud. Simply clarifying billing descriptors can prevent many chargebacks.
“It still shouldn’t be the way it is. Merchants lose thousands or even millions a year from scummy chargebacks that should not be lost in the first place.”
– Redditor
Seek Expert Advice
There are plenty of other steps you can take and tools you can use to prevent chargebacks. We’ll cover some more relevant aspects below but if you're new to preventing (or fighting) chargebacks, or haven’t found much success yet, it’s wise to work with chargeback prevention experts. Chargebacks and the processes surrounding them are complex and nuanced, but the right insights can make a huge difference.
“Had a customer sign for delivery of a $11k custom order, Install the product and showcase it on Instagram posts (not just story). File a chargeback without ever reaching out to us.”
– Redditor
Fighting Chargebacks is Tough For Small Businesses
Not every chargeback can be prevented. The good news is that merchants can also fight chargebacks. If you win chargeback disputes, you’ll protect your bottom line and keep the revenue at stake. Winning chargeback disputes requires sound strategies and effort, but the right tools and approach can produce great outcomes for businesses big and small.
Chargebacks were designed to protect customers from fraudulent charges, and when used properly, they do just that. Unfortunately, however, some cardholders have realized that they can abuse the chargeback process to rip off merchants. Further, the card issuing bank ultimately decides whether to approve a chargeback.
Gather Convincing Evidence
To win a chargeback dispute, it’s crucial to gather evidence, such as IP addresses, signed delivery receipts, correspondence with the customer, tracking information, and more. The right evidence will depend on the specifics of the dispute. Gathering evidence can be time-consuming but various tools can make it easier to do so.
“When creating a Chargeback evidence letter, you have to think like a criminal lawyer, connecting the dots between the data and prove that you were right to flip the script around.” -Redditor
Craft Compelling Chargeback Rebuttal Letters
The above commenter hits it on the head. You can file a chargeback rebuttal letter to dispute a chargeback and present your version of events. The right letter in combination with compelling evidence can go a long, long way toward winning a chargeback dispute. It’s wise to search for examples online or to reach out to experts with experience writing chargeback rebuttals and winning disputes.
Make Sure You Hit Deadlines
When you go through the chargeback representment process, which is the formal avenue to dispute chargebacks, you’ll have to make sure you meet various deadlines. Evidence needs to be compiled and then submitted by specific deadlines. If a merchant forgets to submit information or doesn’t gather enough compelling evidence, they will likely lose the chargeback dispute.
Turn around times are often time and it’s easy to lose track of them. Some dispute management platforms make it easy to track and hit deadlines. Ultimately, using the right tools is one of the most crucial strategies for merchants looking to both win chargebacks and prevent them too.
Strategies for Winning Chargeback Disputes
We’ve outlined a few effective strategies for winning disputes. Of course, learning how to effectively combat chargebacks takes time and expertise. You can always reach out to chargeback experts if you need further advice or insights.
“How are chargebacks legal? And no I don’t mean the chargebacks customers make for actual fraud or when they contact the merchant and the merchant doesn’t reply. I’m talking about the ones where the customer never contacts the merchant and they open a chargeback for “product defective/unacceptable”. I can’t even tell you how many chargebacks we’ve had in the last 6 years where the customer never contacted us and they open a chargeback”
– Redditor
Use the Right Chargeback Management Tools
The biggest merchants often set up chargeback teams that focus on preventing and fighting chargebacks. For many small businesses, setting up a team is impractical and unnecessary. Yet fighting chargebacks is still crucial no matter the company’s size. It’s wise for small businesses (and big companies, as well) to use chargeback management software that can streamline and automate much of the chargeback dispute process. This way, even a small staff can handle and win chargeback disputes.
Use Alerts to Prevent Chargebacks
Merchants can also use chargeback alerts to deflect chargebacks. An alert will warn a business that a customer is moving to file a chargeback, but crucially, the warning comes before it’s actually filed. This provides the merchant an opportunity to offer a refund or clear up confusion. If the issue is resolved, the chargeback won’t be filed. There are several chargeback alert services, and managing them can be rather laborious, but the best dispute management platforms allow you to manage them from an easy-to-use dashboard.
Take-Away: The Right Approach to Fighting Chargebacks is Crucial
ChargebackHelp can help merchants track deadlines, gather evidence, manage chargeback alerts, and put together a compelling rebuttal letter. All of these steps can reduce the detrimental impacts of chargebacks. Ultimately, fighting and preventing chargebacks takes effort, but for businesses big and small, it can go a long way toward protecting your business.