Simply put, if you sell goods and services to people, chargebacks are a permanent part of the landscape.
But while there’s no escaping them, there are steps merchants can take to minimize them.
The “magic” industry-wide chargeback ratio is one percent.
Anything below that is considered acceptable and anything above it can begin to cast a shadow on your business.
Chargeback ratios are calculated by dividing the amount of chargebacks in a month by the number of transactions.
Although that sounds pretty straightforward, different processors may come by ratios in different ways.
For instance, VISA divides monthly chargeback totals by transaction totals from the same month, whereas MasterCard divides chargebacks by the previous month’s transactions, so the two issuers may have two seperate ratios for the same business.
If one or both of those ratios start to climb above one percent, it may indicate to card processors that your business belongs on a “risk list,” which contains the names of merchants who’ve been flagged for fraudulent activity.
An Ounce of Prevention
While there are ways to combat chargebacks after they happen, the process can cost money, time and resources — which means the best case scenario is to stop them before they happen.
Creditcards.com lists eight key proactive measures merchants should be taking:
- Follow processor protocol: Each processor provides merchants with a unique set of procedures that must be followed.
Most ask that expiration dates be verified and security codes collected.
Online and phone transactions may necessitate gathering a digital signature, IP
address, confirmation through a service (e.g. Verified or SecureCode) and/or
proof of delivery.
- Use a clear payment descriptor: Many chargebacks happen because customers don’t recognize a merchant’s descriptor on their card statements.
- Get it in writing: Requiring customers to sign clearcut contracts or agreements is a great way for merchants to prove their case should a dispute arise.
- Deal with customer issues immediately: Take advantage of early chargeback notifications by contacting the customer promptly to resolve problems before they escalate.
- Learn to spot fraud: Not only should cart functions and payment gateways be secure, but security codes, shipping/billing address verification and even details from social media accounts can be used to establish that a customer is who they say they are.
- Solid employee training: Any team member tasked with taking credit card payments should understand the importance of practicing prevention techniques like collecting signatures on contracts, verifying signatures, spotting suspicious transactions, etc.
- Impeccable recordkeeping: The best way to dispute both friendly and not-so-friendly fraud is to retain plenty of proof from each transaction.
- Know when to fight and when to get help: Fighting chargebacks can be costly, but not as costly as ending up on a “risk list.” Merchants who are having a hard time winning disputes or are getting too many chargebacks may want to turn to a reputable chargeback management firm to help.
When it’s time to fight . . .
No matter the nature of the chargeback, good recordkeeping is always a merchant’s friend.
From exhaustive data collection to well-organized archiving (going back two years, which is the legal deadline for chargebacks), nothing sways a decision like cold, hard evidence.
Of course, there are many several of chargeback scenarios, including unrecognized purchases, products never received, products unacceptable, billed for canceled subscription and actual fraud.
Each scenario requires a specific type of response, backed by case-appropriate evidence.
For instance, in an “unrecognized purchase” situation, merchants should be able to produce an invoice or signed order form; proof of delivery; identity of order recipient; whether the products are being used and any addresses (i.e. IP, email, physical) or telephone numbers used in the transaction.
On the other hand, a “product unacceptable” dispute might require a rebuttal statement, documentation that the customer received what was promised, delivery information (e.g. tracking number, shipping address, IP address, timestamps, address verification, delivery dates, etc.)
Depending on the size of a company, it’s advisable that merchants regularly perform reviews of their chargeback status and the effective of their system of preventative measures. Too many chargebacks definitely indicate a need for increased vigilance.
All of this sounds complicated.
And it is.
From making sure a company is safeguarded against chargebacks to knowing how to fight the ones that happen anyway, this part of business ownership requires a high level of knowledge and expertise.
Anything less can cost a merchant their ability to accept credit cards.
With over ten years of industry experience, MyWatchmen not only knows precisely how to fight chargebacks of any description, we also help companies put procedures in place to help make sure they don’t happen.
We are educators, representatives and advocates who have the determination and knowhow to fight for our clients and win.
In fact, if we don’t increase your bottom line, we don’t get paid.
How’s that for confidence? Click here to find out more.