Whether you accept payments in-store, online, on-the-go or all of the above, you need to be prepared for chargebacks. When customers dispute a charge on their credit card, you lose business and your reputation is tarnished.
When customers dispute a charge, they're automatically issued a refund by the bank. It's then up to you – the business owner – to fight the chargeback and prove that the transaction was valid.
"Instead of claiming a refund from the merchant of the business transaction, cardholders can get in touch with their bank and ask for a chargeback by registering a transactional dispute," explains MyChargeBack.
While there's no way to fully protect your business from chargebacks, there are steps you can take to minimize the risk.
1. Use a Name that Customers Will Recognize
With cases of identity theft on the rise, customers are quick to dispute charges from transactions they don't recognize.
If your credit card descriptor, the name that shows up on your customers' credit card statements, doesn’t match your brand, you're at a much higher risk of experiencing a chargeback.
If you're a sole proprietor and your legal name is different from your brand's name, then consider using your brand's name as your credit card descriptor.
2. Have Clients Sign Agreements
If you provide services to customers, consider having them sign an agreement prior to starting a project.
The contract should clearly outline which services you will provide. When customers sign the contract, they are, essentially, agreeing to having their credit card charged for your services.
Having an agreement with customers acts as a safeguard, so if a charge is disputed, you have proof that the customer agreed to purchase your services.
3. Deal with Customer Service Issues Promptly
Maybe a customer's shipment was lost or a customer received the wrong item. The customer tried to contact you, but it has been days since you've checked your customer service email.
The customer loses patience, and contacts their credit card provider to initiate a chargeback. Had the complaint been dealt with in a timely manner, the customer may never had requested a chargeback.
The moral of the story? Handle customer service issues promptly. Customers just want their problem solved.
Customers will often check to make sure they can contact a company before they decide to buy, so keep this in mind.
Make sure that customers also have a way to contact you through telephone or email. Live online chat services are helpful, and social media accounts provide yet another avenue for people to ask questions or voice complaints.
The bottom line? Don't make customers jump through hoops just to get a hold of you.
4. Be as Detailed as Possible
Whether you sell products or services, be as detailed as possible when describing your offerings.
How many times have you purchased a product and it turned out to be nothing like what you thought? Have you ever signed up for a monthly service, and found that the service just doesn't meet your expectations?
When presenting your products or services, be as thorough and detailed as possible.
Provide high quality images of your products, and provide technical information about your products: dimensions, weight, color, etc.
If you're offering a service, be detailed about what you're offering. List all of the features, and be upfront about the cost of your service. Customers want to know exactly what they're getting when they buy something intangible – especially if they're signing up for a monthly subscription.
5. Don't Make False Promises
One of the most effective ways to avoid chargebacks is to never make promises you can't keep. Making guarantees or offering lifetime services is setting yourself up for failure.
Do you have the ability to follow through on your guarantee? Some SEO companies, for example, guarantee high rankings to customers. But because they have no direct control over rankings and the rules for rankings change over time, most cannot follow through on that guarantee.
If your product or service cannot live up to the claims you make, you will run into trouble – now or in the future.
6. Offer Refunds
The simplest and easiest way to avoid chargebacks is to offer refunds. If customers are unhappy with your products or services, they will get their money back one way or another.
Offering refunds does three things:
- Makes your company more credible. Why would you offer refunds if your products or services were terrible?
- Makes you more trustworthy. Customers will be far more likely to buy if they know they can request a refund if their purchase doesn't meet their expectations.
- Puts you in control. Rather than the customer going to their credit card company, they go to you to initiate a refund. This gives you an opportunity to resolve the situation, and also allows you to be the one to refund the money.
Every merchant should offer refunds – regardless of what they offer. Think about it: Would you purchase from a company that had a "no refunds" policy or worse, no known refund policy at all?
7. Don't Hold a Customer's Money Hostage
The longer you hold onto your customer's money before delivering, the greater the risk of a chargeback.
Offering a pay-what-you use, monthly or upon receipt method of payment is optimal and will lower the risk of chargebacks.
8. Maintain Good Records
Maintain accurate records of customer transaction dates, authorization information and amounts. If you have signed receipts or contracts, save these as part of your records.
Contracts and receipts can serve as proof that the customer authorized the transaction.
Taking steps to reduce your risk of chargebacks will help preserve your reputation with your merchant account provider. Fewer chargebacks also means fewer headaches for you. Each chargeback may cost you an additional fee – plus the money lost on the transaction itself.
Ultimately, if you offer customers exactly what you promise and your goods/services are high quality, you should have little trouble with chargebacks, period. These extra layers of protection and prevention will help minimize the risk even further.