How to Avoid Merchant Account Chargebacks

When a credit card transaction is reversed, and the money is taken from the business account and given back to the credit card user's account, this is called a chargeback.  Chargebacks are financial liabilities to the business owner, as the credit card user's account is credited and they are no longer financially responsible for that particular transaction.  For business owners, chargebacks can be extremely costly as they lose both the money for the transaction and the service or merchandise that was purchased with the credit card.  Most merchant account providers will also charge a fee on chargebacks.

What Causes Chargebacks?

There are several reasons why a chargeback might occur, including a customer dispute, fraud, or authorization issue. Sometimes there is very little a business owner can do to prevent a chargeback, but you can- and should- take certain precautions to reduce the number of chargebacks you receive. 

Customer Disputes

When a dispute made by a customer is the cause of a chargeback, there are a few different reasons why a chargeback is made.  Sometimes, customers do not receive the merchandise they ordered or they are unhappy with the service they paid for.  Sometimes the cardholder did not make the transaction, in which case the charge was fraudulent.  Customer disputes are the number one cause for chargebacks and your business should address them as quickly as possible in order to ensure customer satisfaction.

Dealing with Chargebacks

When you receive notification that a customer is requesting/receiving a chargeback, sometimes you can resolve the issue without losing the sale entirely.  If a cardholder requests a refund on their credit card due to not receiving credit on merchandise they returned to your business, you might be able to avoid the chargeback if you can prove you submitted the credit to the account on a specific date.  You would provide details like these to your merchant bank.  If found that your records are accurate and there is no reason for a chargeback, your merchant bank should then be able to resubmit the charges to the cardholder for payment.

Check with your merchant bank to be sure you understand the time limit for each step of the chargeback cycle and be sure you remain within those time limits.  Even if you have proof that a customer is not entitled to a chargeback for some reason, if you do not provide the necessary details to the merchant bank within the alotted time frame, you will not be able to remedy the chargeback process.

Internet Business Chargeback Considerations

When you process credit cards by phone or online, they are considered "card-not-present" transactions.  There are some rights for the business owner when the chargeback request comes in involving a transaction that used the AVS or CVV2 numbers for security.

If you have an AVS match on a credit card transaction, and the billing and shipping addresses are both the same- then as long as you shipped the products to that same address, you can represent a chargeback request on that card because the AVS serves as the security measure.

Avoiding Chargebacks

One way for small businesses to successfully avoid the majority of chargebacks is to carefully process your credit card transactions.  Appropriate training and attention to the details will help most internet businesses reduce the number of chargebacks.  Make sure that your website clearly states the conditions of each product or service so that a customer knows exactly what they are paying for and have less of a reason to request a chargeback.