How Do You Respond to Chargebacks?

Running a small business means keeping your customers happy. A lot of the time, though, this can be way more complicated than it sounds. Consumers are complicated; sometimes they change their minds, sometimes there is a mix-up (fraudulent use), and yet other times a product turned out to not work correctly, not fit just right, or they just ended up not needing it after all. Whatever the case, the result is the same: chargebacks. Chargebacks result when a customer disputes a credit card transaction through their bank. And when it comes to chargebacks, “the customer is always right,” really is no joke, because the process was created as a way to increase consumer confidence.

Overall, chargebacks have become a quick and easy process for consumers, leaving business owners with a lot of hoops to jump through to prove a given charge cannot be disputed. When a chargeback is issued a merchant must provide proof that a customer has been rightfully charged, and this becomes especially tricky with the rise of identity theft and fraud. If a merchant cannot successfully provide enough proof that the customer did in fact make the charge, the merchant stands to lose the product or service rendered, as well as the revenue from that sale. To add insult to injury, even if a chargeback does not get approved (which is unlikely), the merchants’ bank will still withhold that payment until the consumer has resolved the issue. Fair right? Well it may not be fair, but there are some better ways to handle chargebacks so that they don’t completely disrupt and ruin your day.

Any customer, at any time has the right and the option to dispute a charge. Depending on the consumers issuing bank, resolving chargeback disputes can take anywhere from a few days to a few months. When a chargeback has been initiated, the merchant will receive a code from its issuing bank that gives the reason for the dispute. Some of the most common chargeback codes are:

  • 30: Services not provided/merchandise not received
  • 53: Not as described or defective merchandise
  • 73: Expired card
  • 81: Fraud

Because chargebacks are timely and costly, the best way to handle them effectively and avoid them in the future is to follow these steps:

  1. Respond As Soon as Possible: The quicker you respond, the quicker the process can begin. If you do not respond at all, your bank will most likely issue the chargeback, losing revenue for you.
  2. Give Exemplary Customer Service: Make it easier for customers to handle the issues that typically result in chargebacks. A lot of Amazon sellers, for example, just issue the refund and allow the customer to keep the merchandise to keep their high seller ratings. A direct refund will end up costing you less in the long run due to all the fees charged by both banks involved in chargeback situations.
  3. Swipe Actual Cards/Check I.D.: Whenever possible, use an actual card instead of just credit card numbers, and even require CVC codes and an I.D. to help decrease instances of fraud.
  4. Communicate: Keep in touch with your customer base about all open orders. Your customers are less likely to get angry and request a chargeback or refund if they are up to speed on the status of their order.
  5. Require Signature Upon Delivery: To weed out even more instances of fraud, require signatures upon delivery so that you can be certain your goods are making it to their destination.

Chargebacks are just another cost of doing business, but if you respond to them correctly and prepare yourself for them appropriately, they shouldn’t give you too much of a headache, just remember to NOT overreact, stay calm and proceed with caution!

How does your business deal with or handle chargebacks? Tweet us @KabbageInc to let us know!

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