How to Prevent Chargebacks in Business

Not having chargeback prevention costs businesses across the country $31 billion in revenue every year. This massive headache impacts every business owner to some degree, yes, even you!

The key is to find a way to weed out fraudulent transactions that lead to costly fees and bad industry relationships. Let’s dial it back and start with what a chargeback is and how they usually occur.

Why Chargebacks Happen

As a business owner, there’s no doubt that you’ve had a customer dispute a charge on their card. When the cardholder disputes a charge with the card issuer, it’s usually the business (you) that ends up footing the bill.

The Process

The card issuer investigates the claim, which typically results in a chargeback fee. Think of these fees as a credit score that card issuers use to rank the reliability of your business. The more chargeback fees you have, the more likely you’ll be red-flagged in future disputes, straining your business even more over time.

Reasons for Chargebacks

  • Disputing a fraudulent charge
  • Chargeback Fraud (intentionally trying to defraud the card issuer)
  • Problem with the product (damage, lost, or didn’t fit the description)
  • Friendly Fraud (consumer forgets and unknowingly reports a charge as fraudulent)

Either way, chargebacks cost you both time and money to manage the dispute. Most of the time, the cardholder will bypass you and go to their card issuer anyway. That’s why you need to learn methods for preventing chargebacks in the first place.

Preventing Chargebacks Proactively

Chargebacks increase the number of fees you have to pay and damage your reputation with customers.

Make Yourself Available

If you don’t make it easy for a customer to contact you, then why would they wait around instead of going straight to their issuer to dispute the charge?

You should have a variety of ways for customers to get in touch with you. For example, BillingTree offers a fully comprehensive IVR (Phone payment) system that allows your customers to filter through a list of options to manage their accounts. A few other options that you should offer are email and chat.

By opening up these lines of communication with consumers, you effectively show that you’re a legitimate business that is looking to build a stable relationship with your customers.

Keep Solid Customer Records

Time is everything when it comes to chargebacks. You want to be prompt when they occur. The best thing you can do is keep a record of all your customer transactions. This way, you can quickly respond to issuer inquiries when they inevitably happen.

When you have documentation that says, a customer bought an item using their card, the transaction was verified, the shipment was delivered to the correct address that corresponds to the card, then there’s not much to argue on your end. This proves you did everything correctly on your end.

Having this level of documentation is an excellent defense for illegitimate chargeback claims, protecting you from unnecessary fees.

Takeaways

Being proactive and having the right tools are the best ways you can prevent chargebacks and protect yourself when they eventually happen.

BillingTree’s key security features include AVS protection, tokenization, and end-to-end encryption. We keep your payments safe while providing you with various ways to stay engaged with your customers, like IVR, text, and online payment portals. Our tools help you manage chargebacks and reduce administrative costs at the same time.