This article was first published on February 16, 2020, and updated on December, 2022.
Almost all businesses these days accept and transact payment through cards. The cashless method of payment is convenient for both the merchant and the customer as the risk of theft is reduced due to the limited availability of cash on hand.
Unfortunately, with progress come with a price – card payments put merchants at risk due to chargebacks.
Chargebacks are common issues in the business world due to technical error, human fault, or fraud. Charges dispute can hurt the merchant’s profit due to losses on sale, investment on the item/s or services, and chargeback fees. Not only that, a certain percentage of chargebacks can lead to account suspension or account termination.
Because of the time and cost involved in chargebacks process, card associations impose a certain percentage of reasonable chargebacks for every merchant.
A chargeback higher than 1% on any form of payment will put the merchant on the card associations’ watch list. Besides, if a merchant has more than 1% chargebacks for transactions on a specific card, then another penalty may be incurred. Moreover, higher processing fee on all orders will be collected from the merchant (for chargebacks higher than 1%).
Another awful truth is that if a merchant fails to lower their chargeback rate within a given time frame, the merchant’s account may be terminated by the acquiring bank and may not be able to process payments within that certain card association.
To prevent merchant account suspension or reduce the risk of high rate chargebacks, always avoid common factors and mistakes by keeping in mind these best practices:
Always act on every chargeback as quickly as possible. Remember that a delayed action from your end can majorly affect your business. Keep an open line of communication with your customers to resolve issues before the customer devolve to filing a chargeback.
Any misunderstanding can be fixed promptly. While occasional chargeback cannot be avoided, at least this can be lessened, therefore saving merchants a lot of money, time, and the hassle of going through the dispute process.