What Are Chargebacks and How Can You Overcome Them?

3 Mins read

Having to deal with chargebacks can weaken the position of a business. Financially, you lose a lot of money in legal procedures and documentation. You also have to give away the price of the product/service in case the customer wins.

It can lead to bankruptcy and low credit scores. Even if you try merchant accounts for bad credit, the decline in financial history and stability can shake the foundation of a business.

To avoid all this, it’s best to educate yourself about chargebacks and how to overcome them. In this article, we’ve discussed all this information. Let’s read!

What Does a Chargeback Mean?

A chargeback refers to the reversal of credit card funds that the buyer used to make a purchase. It doesn’t matter whether the purchased goods are a product or service. Once the customer contacts the related credit card company for a chargeback, there’s no going back.

The claim is followed by a detailed investigation. In case the customer’s request turns out to be valid, the credit card company reverses the amount and pays the customer. However, the amount withdrawn is from the merchant’s account.

Although this process exists to protect buyers from fraudulent activities, there are people who use it to their benefit. Some cardholders make invalid claims for chargebacks. They either call the purchase a fraud or something they were unaware of in the past.

Regardless of the cause, a chargeback can cause severe damage to the business. The blow may come as a financial loss or reputation crisis. Merchants may even lose new customers.

5-Best Ways to Overcome Chargebacks

Unfortunately, complete prevention of chargebacks is not an option for businesses. As long as people use credit cards for purchases, you are at the risk of facing a chargeback inquiry. And so, it’s highly important to know how to overcome them.

Here are the 5-best ways to battle a chargeback:

Provide excellent customer service.

Chargeback is a direct result of an unsatisfied buyer. Your customer may be feeling confused about the charged credit card amount or uncertain about the product/service. In any case, keeping good contact with your clients can help ensure the issue is resolved before chargebacks.

Maintain records of every sale.

When dealing with a chargeback, your only weapon against fraudulent claims is the information. So, merchants should record every transaction in detail. They must have basic client data like the amount paid, product/service purchased, cardholder name, and the date of purchase.

You can either use innovative data entry tools, hire a remote accountant, or do everything yourself. For large-scale businesses, the latter can be difficult, making the other two options the best.

Be prompt and vigilant.

Once you receive a notice of the chargeback case, try to respond to it quickly. Do not make the company or the customer wait because it can further complicate the issue. Instead, reply quickly and efficiently.

Since there are several parts of the process with time limits, replying earlier can help save any time and money lost in penalties. Other than being prompt, you should also be vigilant throughout the investigation.

Use the reason code to your advantage. It gives you the reason why the customer opened the dispute. It also reveals the evidence requirements and timeline. So, you can prepare the documentation more effectively.

Set priorities.

It’s natural to feel the need to defend your product and business name. However, as a merchant, you should realize that not all fights are worth it. If you’ve documentation and evidence easily available for a dispute, go ahead and win it.

But, in case you don’t have sufficient things to defend yourself and the chargeback amount isn’t too high, it’s best to let the customer win. You will save all the time and energy spent on winning a difficult fight.

Invest in the right tools.

If you’re running an online business, you’re in luck. Various fraud detection tools can help you avoid chargebacks. These tools identify any risks on orders and notify you immediately. Some can even track the customer’s activity and alert you about potential illegal actions.

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