When business owners choose to accept credit card payments, they’re providing their customers with a convenient way to pay. However, problems arise when customers ask their credit card company to issue a refund.
Regardless of why customers want their money back, it’s time-consuming and expensive for a company with a high-risk merchant account to dispute these claims, also known as chargebacks. The process of contesting chargebacks is called representment. Often, companies believe representment isn’t worth the expense and trouble. Here’s an overview of the three kinds of chargebacks and ways businesses can fight or prevent them in a cost-effective manner.
If thieves steal a person’s identity or credit card number, they can use it to buy goods and services online. When the charges show up on the consumer’s statement, he or she is likely to call the credit card issuer and ask for a refund. In this case, the consumer is a victim of fraud.
With intentional friendly fraud, consumers buy an item online with their credit card and then request a refund, even though they received the item and it’s in the promised condition. Examples of friendly fraud include claims that the item wasn’t delivered, it arrived damaged, and that the customer couldn’t download their paid content.
There’s also accidental friendly fraud. In these cases, someone disputes a charge they think isn’t legitimate. Maybe someone else in their household placed an order, and the cardholder doesn’t know about it. It’s also possible they don’t recognize the merchant’s name because of the way it appears on their statement.
Business with a high-risk merchant account also faces legitimate chargebacks. In these cases, the customer may not have received their shipment, the item you sent may have been damaged during shipping, or the product may not function properly.
Image via Flickr by Håkan Dahlström
Some companies with high-risk merchant accounts may choose not to contest chargebacks for payments below a certain amount. Indeed, the cost of representment can exceed the amount of the refund. But there are indirect costs, too. Companies with a slew of undisputed chargebacks risk losing their ability to accept credit cards.
Unless you have a high-risk merchant account that makes allowances for chargebacks, you could suddenly be unable to accept card payments. Traditional processors freeze accounts when there are too many chargebacks. Even service providers that specialize in high-risk industries may give you less favorable terms if your chargebacks become excessive. For this reason, it’s critical to decide how and when to contest chargebacks.
At the heart of this issue is your company’s trustworthiness. Your company’s very reputation is at stake when you have no system in place to fight against chargebacks. When a large number of chargebacks go undisputed, banks, credit card issuers and other financial institutions get the impression that the company is guilty of wrongly charging credit cards.
One way to fend off friendly fraud is to state clearly on your website the name of any billing service or processor you use, especially if that company’s name will appear on customers’ statements. With this low-cost approach, you reduce the chances that someone won’t recognize a charge for a product or service from your company.
Another tip is to arm yourself with evidence to combat friendly fraud. Consider maintaining records for tracking numbers that show your package was delivered, photographs of labeled shipments before they leave your warehouse, and proof a customer accessed your online service by logging into a website. See if your inventory or shipping system has a way to store this kind of data. If it does, it won’t cost a great deal for you to begin keeping this information on hand, so it’s readily available to combat friendly fraud.
Having responsive customer service helps reduce the number of non-fraud chargebacks brought against your business. When customers feel your company is accessible and willing to address their concerns, they’re much less likely to ask their credit card company for a refund. Simply by offering excellent customer service, you can head off some non-fraud chargebacks.
In summary, there are several ways to fight chargebacks, from doing a better job of communicating with your customers to collecting information you can use later as evidence. Also, take advantage of credit card issuers’ automatic representment programs. If you do decide to challenge a chargeback, you typically have about a week to make your move. So it’s important to act when you have evidence to prove your case.