Every small business that accepts credit cards knows about chargebacks. A chargeback is when a credit card transaction is reversed. Some (but not all) of the common reasons for chargebacks include:
- The customer did not receive the service or item purchased.
- The service or item purchased was not as advertised.
- The customer was charged the wrong amount or was charged twice.
- The customer didn’t recognize the charge on their credit statement.
- Fraud, either as a result of identity theft or the credit card was used with the deliberate intent to request a chargeback later.
As a merchant it pays to know your stuff and be proactive. The more you know and the harder you work to anticipate and avoid issues, the more you can minimize chargebacks.
The good news is that many chargebacks can be avoided. Some of the following tips may seem obvious, but they are basic blocking and tackling that businesses sometimes fail to do.
Communicate Clearly and Provide Contact Information
Sometimes, a chargeback can come from miscommunication or unclear communications.
Advertise as accurately as possible and provide clear terms of service. Giving insufficient information can cause as many problems as giving inaccurate information, especially if you are selling online or via mail order and the customer doesn’t have the opportunity to physically inspect the item. Err on the side of giving as many details as practicable if selling online.
If there is an issue, try to resolve it with the customer directly and reiterate your return policy if necessary.
Make sure transactions from your business are easy to identify on the customer’s credit statement. It’s a good idea to also include your customer service number or website. This way, if the customer doesn’t recognize the charge, they can contact you directly.
Give Great Customer Service and Respond Quickly
Good customer service makes it more likely that a customer will come to you first if they are unhappy with a service or purchase, giving you the opportunity to fix the problem before a chargeback is filed.
For online orders, ship before you deposit the transaction. if an item is out of stock or there are delivery delays, notify the customer so as to manage expectations.
Have a generous return policy and state it clearly on your sales receipts or website. Then customers will come to you for a possible refund instead of going through the chargeback process.
Refunds or replacements are two ways to solve issues, of course, but being creative also helps. A generous discount for a future purchase may satisfy the customer. Sometimes instructions or assistance to resolve a problem installing or operating an item may be answer. But you won’t have that opportunity to “make good” unless you respond quickly and professionally.
Avoid Technical Errors
Double-charging a transaction is an all-too-common occurrence in this age of technology. Make sure you enter a transaction into your point of sale terminal only once and deposit it only once.
Be sure to void any incorrect sales receipts and only process the transaction once.
If the customer is present, let them know that you have voided the transaction and tear up the old receipt in front of them. If you notice that a customer was charged twice or incorrectly, immediately correct it and refund the customer’s account.
Deposit sales receipts and credit receipts at the acquirer as soon as possible.
Leave a Paper Trail
Create whatever paper trail might be necessary to verify the customer authorized the transaction and received their purchase. Make sure the customer has signed the receipt.
If you’re shipping an item, be sure to get delivery confirmation. Keep a record of your sales drafts and do not alter them in any way.
Train Staff — and Explain Why
It won’t be much help for you understand the issues that can lead to chargebacks and how to avoid them, if your staff doesn’t. Take the time to not only explain what your staff should do, but why. That way you empower your staff to anticipate issues and make daily decisions to satisfy customers.
Think broadly, too. It’s not just retail sales staff or customer support who need to understand. Consider such staff as your webmaster, who may be able to forestall duplicate online credit-card charges by putting a notice on a Web page not to click the back button during an online transaction, as it may result in a double charge.
Consider also your marketing staff, who are in a position to avoid misunderstandings by clearly writing product descriptions and terms of service. In other words, consider your end-to-end marketing, sales and customer support processes.
Practice Good Fraud Prevention Techniques
There are a number of things you can do at the point of sale to avoid fraud and the resulting chargebacks. Some quick tips include:
- Compare the card signature to the signature on the receipt and make sure they match.
- Swipe the credit card whenever possible – do not key in the card number.
- Never complete a transaction if the authorization request was denied. Instead, ask for another form of payment.
- For online orders, require the security code (the 3-digit CVV2 or CVC2 code, or in the case of American Express the 4-digit CID code).
You can read more about preventing fraud at the point of sale here “Fight Credit Card Fraud at the Point of Sale.” MasterCard has created a very good Chargeback Guide, in convenient PDF form, which you can find along with other helpful resources at: MasterCard Rules to Prosper By.
It may not be possible to avoid every chargeback, but following these best practices and policies will definitely help you minimize them.
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