Chargebacks can seriously hurt your business in many ways. It puts you at risk of being classified as a high-risk merchant. Unfortunately, this is something you have to deal with at some point when running a business.
It used to be a consumer protection measure but has now become a two-edged sword that will cost you money under the wrong situations.
As the name suggests, it’s when funds transferred from the customer to you, the merchant, is reversed. A buyer, for example, takes back their payment because they’re unhappy with their purchase.
Unlike the usual product returns, you incur fees from the merchant service provider as payment for investigating the chargeback case and finding a resolution. This can cost you $25.00 per incident, even when the issue revolves around a $10 purchase.
Worse, you might not get the fees back even when a dispute resolution is in your favor.
This could be one of several things.
Clerical or Technical Error
This can be caused by human or system error that results in accidental duplicate billing, expired credit or debit card, incorrect amount billed, errors at the end of the issuing bank, or an authorized refund that never reached the customers.
Unhappy customers will request a chargeback due to poor quality, non-delivery, return attempts that have been refused, or when they did not authorize the transaction in the first place.
Chargeback or Friendly Fraud
This can happen on the part of a customer, a third party, or the merchant. Some customers claim a chargeback, even when they’re happy with the products sold to them.
Imagine paying $25.00 for investigation fees for an item in dispute that only cost $10. That’s a business loss that is sure to sting.
Loss of Credibility
If you’re hit with too many chargebacks, other customers would avoid doing business with you. Even when you’re a victim of friendly fraud, your client base is unlikely to grow with the kind of reputation you have.
Frozen or Terminated Merchant Account
If you’re already classified as a high-risk merchant and you still have to deal with multiple chargeback fees, your merchant account might be frozen or terminated. When this happens, you won’t be able to process credit or debit card payments.
If you run an e-commerce business, you’re going to lose buyers, potential and old ones, if they can’t use their credit or debit cards to purchase your products.
Moreover, you may have difficulty opening a new merchant account if you’re account is terminated and listed under Terminated Merchant File.
Considering the impact of multiple chargebacks on your business, you should set up preventive measures and other strategies to prevent this from happening.
One of the best solutions is to partner with a merchant account provider that caters to high-risk businesses. Look for a company that has a mitigation program that can prevent 3 or more out of every 10 potential chargebacks.
Make sure it has anti-fraud tools and can collect evidence that you can use during a dispute and move the tides in your favor.
The best cure is prevention. Read more tips to prevent chargebacks.