A proactive and comprehensive plan to prevent and deal with chargebacks is a must for any business that accepts credit cards. Without an effective plan, chargebacks can be costly and can even cause a processor to close a merchant account.
There are several reasons that cardholders issue chargebacks. Some of the most common reasons are the lack of receipt of a product in the specified time or the misrepresentation of the products by the marketing, which causes customer dissatisfaction. Whatever the reason, the loss is magnified if a customer has already received products or services. Chargebacks issued prior to receipt of goods or services result in loss of capital and profit for a merchant.
If a customer disputes a charge for a product or service they have already received, the merchant runs the risk of losing capital, profits, and product. If the product or service is expensive, this combination can represent a substantial loss. An effective chargeback plan reduces the frequency of chargebacks and increases the likelihood of winning disputes when they are issued.
Chargeback fraud is difficult to combat even with the most comprehensive plan. Fraud occurs when a cardholder issues a chargeback with the intent to extort money from a merchant for products or services. In a fraudulent scenario, the cardholder has no basis to issue a chargeback. The cardholder’s motivation is to steal products or services from a merchant by taking advantage of the system.
Unfortunately, banks unwittingly facilitate chargeback fraud by immediately reversing disputed transactions before contacting the merchant involved. By simply initiating the process, the cardholder wins half the battle. When a cardholder issues a fraudulent chargeback, they have already received the product or service from the merchant, the bank returned the money, and they didn’t even have to provide evidence to support their claim. If the merchant does not respond to the bank’s notice within a specified period of time that generally does not exceed 10 days, the cardholder will successfully abuse the system for personal gain at the merchant’s expense.
Merchants have struggled with the inherent problems and bias in the chargeback system for a long time, but it doesn’t look like banks are going to change their policies any time soon. In the meantime, it is imperative to include methods to prevent and win fraudulent claims in your plan.
The best weapon against fraudulent claims is complete sales documentation, including sales receipts, signatures, and proof of delivery (if applicable). Clients who submit fraudulent claims do not have substantial evidence to support their claim. By keeping complete sales records, you greatly increase your chances of winning these potentially expensive chargebacks.
If your company does not have a plan, create one. If you need some tips to get started, helpful information is available at www.merchantcouncil.org Of course, even the best chargeback plan is ineffective if it is not followed at every credit card sale. Once you’ve created a solid plan, make sure everyone who deals with clients is familiar with it.