The Basics of Chargeback Prevention

The term chargeback is all too familiar with U.S. merchants today. I’m sure the mere sight of the word may make their blood pressure rise in response. While all merchants would like to have no chargebacks, the reality is at one time or another they will be faced with one. Simply put, chargebacks are the reversal of the transactions dollar value. Chargebacks can be costly in the amount of energy spent disputing them to the fees incurred on their merchant account.

Understanding that chargebacks are just a part of “doing business” and arming yourself with the appropriate tools and knowledge can help you to lower their occurrences. Being adequately prepared for copy requests and chargebacks can greatly increase dispute judgments in your favor. Prevention and preparedness is the key.

Prevention is a merchant’s first line of defense against chargebacks. Typically, online merchants see higher rates of chargebacks than brick and mortar business and will have additional preventive steps. Regardless of what type of business you are in common reasons for chargebacks can be lumped into four categories:

Non-fulfillment of copy requests, customer related, errors in processing, and fraudulent activity. Taking a closer look at these four categories and the common reasons for chargebacks we can begin to take the appropriate precautions at the point-of-sale.

Non-fulfillment of Copy Requests:

Customers or issuing banks may request a copy of the sales record. Know the proper procedure for copy requests. It is imperative that the merchant responds within 12 days that the request was received. Failing to provide adequate documentation for copy requests could result in a chargeback. Keeping and maintaining sales records on file is a necessary step in preventing chargebacks. Prepare a system for organizing sales and credit records and store them in a uniform manner.


Customer Related Chargebacks:

1. Recognizable DBA

Reduce customer related chargebacks by having an easily recognized DBA (Doing Business As) on the customers billing statement. The DBA should match your business name or web address, if at all possible, to avoid possible customer confusion. If a recognizable DBA is not possible, provide the customer notification on a store sign, receipt, check-out page, or on the catalog order page that states, “Please note that this charge will appear as _____on your billing statement”.

2. Provide Contact Information

Providing contact information such as a telephone number on the customer billing statement will give customers the ability to contact you with questions or concerns. Having contact information readily available to customers will eliminate unsatisfied customer chargebacks, giving the merchant an opportunity to rectify the situation.

3. State Store Policies

Ensure your store policies regarding exchanges, returns, credits, and damaged items are visible and also ensure its easy to read. These policies be available at the time of the transaction. Provide an easy to read sign at the cash register or a visible banner on your websites checkout page. Provide a printed “policy section” on customer receipts and shipping receipts. Always follow the same protocol for returns, exchanges, etc. Varying your response to these situations can confuse customers of your policies and spark disputes. Credit receipts should be deposited with your acquirer quickly. Failing to deposit these credit receipts could cause a “credit not issued”, resulting in a chargeback. Keep records of credit receipts in soft copy or hard copy. These receipts should include all information like the date the credit was given and the total amount of the deposit, including the credits.

4. Communicate with Customer

Communication is the easy and most cost effective means of avoiding chargebacks. Communicate with customers regarding their order from processing to delivery. Respond to customer inquires promptly. Utilize signed delivery receipts from carriers like USPSâ and FedExâ showing name and address to which the merchandise was delivered. Refrain from depositing a transaction until the merchandise has been shipped. If there will be a delay in shipping because an item is out of stock or the item is no longer available, notify your customer in writing and offer them a substitution or cancel the transaction.

5. Recurring/Periodic Billing

Recurring billing for gym memberships, health insurance, and subscriptions can be convenient but is also a common source of chargebacks. Avoid unnecessary chargebacks by having your customers sign an invoice acknowledging their participation in a recurring transaction. Be aware when your customer pays by another source, and stop the recurring transaction. Situations may arise when your customers need to pay by alternate means. If a customer requests cancellation of periodic billing, cancel the transaction immediately. Advise your customer that their request has been received and the effective date of the cancellation.


Processing Error Chargebacks:

1. Authorization Issues

Card present transactions need to be swiped. Period. If it can’t be swiped, than a full-imprint must be taken to show that the card was present at the time of transaction. Authorization for card not present transactions includes utilizing the AVS (or address verification system) on all transactions. Avoid processing a card not present transaction without an AVS match. Double check non-swiped, or card not present account numbers carefully to ensure that the account number is correct and valid before processing.

2. Duplicate Billing

Make sure that the transactions are only entered once into a point of sale terminal. Avoid splitting the bill into two different transactions. If an error was made, void the first transaction, and start again. If two duplicate bills are unavoidable, such as in two separate sales on the same date, keep track of both sales records, invoices, or order forms. Indicate distinguishing markers such as type of sale or time on sales record.

3. Bad Swipes

Duplicate billing chargebacks can occur when the card is swiped twice. Avoid re-swiping a declined card. If a card is declined ask for an alternative form of payment.

4. Transaction Batch

Merchants should clear their batch daily. Transactions will post to customer accounts faster eliminating unrecognized or forgotten transactions.


Fraudulent Activity Chargebacks:

1. Card Present (Swiped)

Preventing possible fraudulent activity chargebacks in a card present situation is much easier than in a card not present transaction. For card present transactions the merchant must be diligent and look at the card closely. Take note of security features on the card. Is the card signed? Look at the customer’s signature and compare it to the signature on the card. All card present transactions must have a signature. After the transaction is authorized, look closely at the account number printed on the receipt. Does it match the account number on the card? If there is any doubt about a card ask for an alternate payment. If an authorization asks for the merchant to call, take the time to make the phone call.

2. Card not Present (Non-swiped)

Card not present transactions must utilize card authorizations and risk tools such as AVS (address verifications system) and CVV2 (card verification value 2). The CVV2 code (can also be called CVC2, CID2) is a three or four digit code imprinted on the signature strip of the card. Supplying the CVV2 code is intended to show that the customer has the card in their possession or has knowledge of the code. The CVV2 code should not be confused with the CVV code, which is encoded on the cards magnetic strip or the card’s pin number. Be aware of orders that seem out of the ordinary or strange. If there are any doubts ask for an alternative payment.

Preventing chargebacks starts with understanding the common reasons chargebacks occur. Using these facts, merchants are in a better position to reduce the amount of chargebacks they see and prepare for those that occur. Chargebacks will always be hard to swallowArticle Search, but much easier to digest when adequately prepared for.



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