First Card Payments – Chargeback Prevention Tips
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Here are some reasons a business
owner receives chargebacks
The first step to avoid chargebacks is to understand the reasons behind them. So let’s look at the most common reasons for chargebacks.
- At times a client might misunderstand the product or service that they have purchased, resulting in a chargeback.
- Clients will forget the name of the business they purchased from and in some cases forget they even made the purchase. This is known as friendly fraud.
- A client may receive a product that’s damaged, or they may not receive a product or service at all that they wanted to purchase.
- At times clients may just not be happy with the product or service that they purchased.
- A purchase was made by an unauthorized card holder resulting in fraud and a chargeback.
- Sometimes after making a purchase of a product or service the client decides they need money for something more pressing, so they call up their issuing bank for a chargeback knowing they will receive a temporary credit immediately. This is an example of chargeback fraud.
Chargeback Vs Refund
A chargeback is initiated by the customer when they contact their bank directly and begin a process to return the funds to their account.
A return is initiated by the merchant when the business owner returns the funds to the customer’s account and works with them directly.
A refund is much better than a chargeback! All credit card processing companies prefer refunds over chargebacks and so should you!
Why Chargebacks Hurt Your Merchant Account
Chargebacks hurt the business, even if they WIN the Chargeback. For example, if someone was to get arrested and acquitted of charges, unfortunately the arrest is still on their record, the same type of logic is applied with Chargebacks.
Chargeback ratios are crucial if you want to keep your merchant processing account active and in good standing.
Too many chargebacks will make it very difficult to receive a backup merchant account or a new account when your current merchant account gets terminated for excessive chargebacks. Also issuing Banks and ISOs are aware of some business types that are riddled with Chargebacks and more often than not will refuse to work with those types of businesses.
One advantage to being considered being a high risk industry, like the industries we serve everyday, is that banks allow for a higher chargeback ratios for these industries.
Low risk industries have to maintain a lower chargeback ratio than high risk industries.
Again, this is why you should take these chargeback prevention tips very seriously.
Banks can and will terminate a business owners merchant account for excessive chargebacks with little to no warning. Once a merchant account is terminated you can expect the following.
- All funds including batches, reserves, everything will be held for a minimum of 180 days before released. Needless to say, it’s bad enough losing your merchant processing account with little or no notice but to then have your money held for 6 months or longer can be devastating.
- The next step for a business owner after their account is terminated is to find themselves another account. Only to find out its much harder now for them to receive an account due to being terminated by their previous Bank or ISO for excessive Chargebacks.
How Banks View Chargebacks
- If chargeback ratios are too high, this is a liability for the bank, and they would rather terminate an account than deal with these processing issues.
- Eventually the banks don’t want to process transactions because the process is time consuming and expensive for the banks as well.
- Chargebacks are a negative even if you win, if you get arrested and released for innocence, the arrest is still on your record.
- Too many Chargebacks make it difficult to receive a backup account, or a new account if the termination reason is due to excessive Chargebacks
Chargeback Prevention Tips
There are some simple basic practices to adverting Chargebacks.
- Strong communication is crucial with one’s client, so having a good customer service support department is ideal.
- Always make sure a client knows what they are purchasing. Make sure your shopping cart gives the client the option to really look at the purchase and make a final decision.
- Have a friendly refund policy and make it easy for clients to contact you! This will allow your customer to feel more comfortable when purchasing from your company and feel very comfortable asking for a refund rather than going around you and creating a chargeback.
- Always offer refunds immediately and in a timely manner.
- If a client is setup with automatic monthly charges, make sure to touch base with that customer on occasion to make sure their needs are satisfied.
- Another good practice that seems to work well in preventing Chargebacks is by following up by phone, email, etc.
Credit Card Chargeback Insurance Programs
Chargeback mitigation programs are widely used in all industries whether high risk or low risk industries.
These programs are effectively able to Alert a merchant 24-78hrs before a Chargeback occurs.
This allows them in many cases to refresh the client’s memory and resolve the issue right there on the spot. In a worst-case situation, refunds can be applied before a Chargeback hits.
A bank or ISO would much rather see a refund as opposed to a chargeback any day of the week. Another major advantage to a Chargeback mitigation program is once you received a chargeback, an experienced representative will fight and win the majority of your chargebacks on your behalf.
This allows your company to retain the original purchase money. Also, by winning the majority of your Chargebacks your Current Bank/ISO realizes that you’re a reputable company even if your ratios hover in the higher allowed range set by Mastercard, Visa, American Expresses, and Discover.
So even though chargebacks are still on your record your current processor will give you more leeway if they see your winning just about every chargeback. What happens if you get too many chargebacks, how many chargebacks lead to account suspension? Also learn more about chargebacks on Shopify, and chargebacks on PayPal.