How to Protect Your Business from Credit Card Chargebacks

When owning a business, accepting payments is important, but protecting those payments from credit card chargebacks is essential. Unfortunately, when enabling credit card payments, you are at a higher risk, than cash or debit, for chargebacks. This is why optimizing for chargeback protection is important and reflects on the health of your business. Learn how to protect against chargebacks proactively and help your business grow safely.

How to Protect Against Chargebacks

You may not be able to prevent a customer from filing a dispute, but you implement policies and practices within your business to protect yourself as much as possible. Here are the four main ways you can protect against chargebacks:

  • Record Your Transactions
  • Have Exceptional Customer Service
  • Implement Chargeback Protection Solutions
  • Honor Disputes

Record your transactions

A record of transactions is proof the customer made the purchase. If you have proper documentation, you can provide evidence that your customer authorized the credit card payment. This can be in the form of paper and/or electronic receipts and files.

woman unhappy with credit card purchase

Recording your transactions is beneficial in two ways. One, sometimes a receipt or proof of transaction is all the customer needs to retract their chargeback. Remember, not all chargebacks are friendly faults, it could be that the customer just forgot about the charge. Two, if you decide to fight the dispute, you have the evidence you need.

Exceptional customer service

Often, customers will reach out to the company to try to understand or dispute the charge before reaching out to their bank or credit card. If you have exceptional customer service, you may be able to prevent the chargeback from happening.

Install a chat feature on your website so customers can easily and quickly contact a customer service representative. Make sure you have a working customer service phone number with short wait times, available 24/7 if possible. If you have an email address, respond to customers within 24 hours of their message or sooner.

Implement chargeback protection solutions

If you cannot prevent a chargeback, implement solutions to manage chargebacks when they occur. One easy way to do this is to work with a payment processor who will enable the solutions to manage them for you.

Chargeback management solutions include:

  • Putting all of your data on a single platform to allow for efficiency
  • Enabling real-time merchant alerts starting from the initial dispute
  • Reporting in real-time so you can take proactive measures

There are a lot of researched and proven techniques to manage chargebacks. Instead of spending your time learning all of them, let a merchant account implement them for you.

Honor disputes

When you cannot prevent the dispute, honor it. It is likely more money and works to fight a dispute than it is to honor it. So, develop a process for dealing with chargebacks. Focus on prevention first. Then, put the proper policies in place to manage chargebacks when they occur — and they will occur. Don’t freak out when you get your first chargeback. If you’ve put together plans to protect against chargebacks, you’ll know exactly how to manage it. And when all else fails, honor the dispute.

man in a suit making a purchase on his computer

Chargebacks are nothing new or foreign to the business world, and they aren’t going away anytime soon. Take a proactive approach to protect your business from the effects of credit card chargebacks by working with a high risk payment processor, keeping diligent records, and honoring disputes when necessary. If you take these three steps, you won’t be spending your time worrying about chargebacks and can focus on growing and scaling your business instead.

Why Chargebacks Create Risk

There are a number of reasons that chargebacks bring risk to merchants.

Protecting against chargebacks can be costly

If you own a company that is constantly having to refund customers for your good or your service, how are you going to make any revenue? In fact, according to a study by LexisNexis, chargebacks cost merchants in the United States over 1.32% of revenue in 2016. That’s why chargeback protection is an integral part of your business plan — we’ll get to that later.

They make your business risky

Chargebacks are a known risk for all business owners. Not only are merchants aware of this, but banks are too, and banks do not want to take on businesses that are financial risks. Some industries are more vulnerable to chargebacks than others, due to the nature of the industry.

Among many others, examples of highly vulnerable industries are:

  • Downloadable Software
  • Electronics
  • Cigars & Smoking Accessories
  • Furniture
  • Antiques & Collectibles
  • MLM & Direct Sales
  • Penny Auctions
  • Debt Consolidation
  • Tech Support

Businesses that are deemed high risk due to chargebacks and other factors are often denied by banks and standard payment processors. So, when high risk industry businesses are looking for merchant accounts, they must turn to high risk payment processors. Luckily, there are reputable high risk payment processors who will happily take on high risk industries.

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