The Five-Step Cheat Sheet for Handling Chargebacks

It is the merchants’ worst nightmare: their bank account is empty, they can’t process credit card transactions, and customers are frustrated. Unfortunately, this nightmare is a reality that happens all-too-often for merchants who are unfamiliar with handling chargebacks.

Growing dependence on credit card sales has increased the number of transactions that are reversed every day, leaving merchants struggling to deal with revenue loss and higher transaction fees. If you’ve found yourself on the receiving end of a chargeback, use this cheat sheet to know how to proceed.

1. Survey the Situation

Many merchants ignore chargebacks, hoping they’ll ‘go away’ or somehow self-correct. Unfortunately, chargebacks left unattended can turn into a larger problem that can cripple a business.

If you’ve received a chargeback notification, double check your financial situation. Do you still have enough funds to operate? Do funds need to be moved between accounts? Check the account’s chargeback-to-transaction ratio. If the account is close to breaching the thresholds, drastic action may need to be taken immediately.

2. Investigate the Chargeback

Avoid the temptation of assuming chargebacks are ‘part of the cost of doing business.’ Before accepting the loss of revenue as ‘normal’, find out why the chargeback was filed in the first place.

  • Friendly fraud: The most prevalent form of chargebacks, friendly fraud occurs when customers initiate illegitimate or unwarranted chargebacks.
  • Criminal fraud: The threat most feared by merchants and cardholders, criminal fraud, actually accounts for a small percentage of chargebacks. Criminal fraud is the result of identity theft or unauthorised transactions.
  • Merchant error: Policies and practices that are unclear, transaction errors, and other merchant-related issues are the basis for a significant amount of chargebacks.

Chargebacks are classified based on ‘reason codes’ assigned by the card networks. These codes identify the supposed cause for the chargeback and can be used by the merchant during the process of handling chargebacks. Not only can reason codes help determine the cause of the chargeback, they can help establish new procedures and policies to prevent them from happening in the future.

3. Launch a Chargeback Dispute

If the chargeback was filed due to friendly fraud, merchants can take advantage of chargeback protection processes to dispute the claim. This process, known as representment, allows the merchant to offer evidence supporting the transaction. It may include sales receipts, delivery notifications and other supporting documentation that verifies the validity of the sale.

Each card network has different requirements for filing chargeback disputes. It is up to the merchant to be familiar with the process and ensure that they follow the correct guidelines.

Chargeback regulations change frequently–the networks are constantly updating and revising their processes. Make sure that you’re up-to-date with how to correctly dispute a chargeback.

4. Prevent Future Chargebacks

Unfortunately, chargebacks can be a valuable lesson in using best practices in business. Establishing policies and procedures to prevent all three forms of chargebacks, as well as ensuring that your business is secure from revenue loss, is essential for maintaining sustainable business growth.

Online merchants are particularly vulnerable to card-not-present fraud claims and face higher numbers of these chargebacks than non-traditional sales environments. Using effective chargeback management methods will insulate your business from this growing threat.

Not sure where to start? We can help you find weaknesses in your sales protocols and offer assistance in developing processes and policies to prevent chargebacks from occurring.

5. Hire a Professional

Merchants don’t have to attempt to deal with chargebacks alone. If you’re feeling overwhelmed with trying to juggle the daily operations of your business, as well as managing the chargeback/representment process, turn to chargeback management experts for help.

Let someone else help you with handling chargebacks; you handle running your business.

Contact us for information about using our professional chargeback management services.