Five Ways to Protect Yourself From Chargebacks

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No matter what type of merchant you are or what industry you’re in, there’s one thing that all merchants have in common: the plague of chargebacks. You make a sale. You send the merchandise to the customer. The money is in the bank. You go about your life. But wait? Suddenly, your payment processing company contacts you with a frowny face. That totally legit business transaction that you processed suddenly went awry and now you have to return the money.

Sometimes the customer says there was something wrong with the product. Sometimes the customer claims they never received the merchandise. Sometimes the customer claims that they never made the purchase to begin with. Whatever the reason, banks do very little to protect merchants from unfair or fraudulent chargebacks. While chargebacks are a sad part of merchant life, you do have the power to keep them at a minimum. Here are a few tips for doing that:

Five Ways to Protect Yourself From Chargebacks

  1. Follow the protocol from your payment processing service.

    Payment processing services set up special precautions to prevent fraudulent purchases. These simple steps help you prevent fraud, which leads to chargebacks when the actual card owner looks at their bank statement. If you are swiping the card in person, you should ask for identification, as well as verifying the expiration date. If your purchase is a card not present transaction, you need to require additional information before running the card, such as the CVV number on the back, which guarantees that the purchaser actually possesses the card they are using.

    Each payment processing service has its own guidelines for secure payment processing. Following the guidelines presented by your service not only protects you, it gives you more leverage to work with the payment processing service if the chargeback is unfair.
  2. Use a payment descriptor that customer’s remember.

    Surprisingly, some of the most common disputed charges are a result of the merchant using a descriptor that doesn’t sound like the name the customer actually used their card at. When the customer scrolls through their recent activity, the descriptor is the details about your business that they see. Sometimes you’re unable to use the actual name of your business as the descriptor; perhaps your business is a child company of the name on the door. But don’t make the descriptor too confusing, or it will unnecessarily raise alarm bells when your customer looks at their statement. And once someone is certain that there is a fraudulent charge on their card, it isn’t easy to get them off of that track, which piles your chargebacks on.

  3. Make sure that your service offerings are in writing, with the clients signature.

    If large purchases, make sure that you create a contract that spells out what the cost is going to include, what actions you’ll take if any issue with your product or service arises, and on what date and time the client will be charged. Getting all of this in writing is an extra layer of protection, in case the client files a dispute for a chargeback. The payment processing company has more to work with in defending you if the client has signed off on the product or service, even if it was a card not present transaction.

  4. Provide good customer service.

    If your customer has an issue with your product or service, you should make it a point to gain their satisfaction and avoid the chargeback altogether. Otherwise, as soon as the charge dispute has been initiated, you should receive an alert. This is a good time to reach out to the customer and try to fix the issue that they have with the product or service, so that they’ll stop pursuing the dispute themselves.

  5. Learn the warning signs of fraudulent charges.
    Of course, no matter how good your customer service is, there isn’t much you can do if the customer never made the purchase themselves. The best way to protect yourself from this is to learn the signs of fraudulent charges, and take extra precautions. If the shipping and billing address are different, or if the CVV number is incorrect, this is a good time to call the client and verify the charge before processing it.

Do you have any other tips? Please share below.

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