Take Charge of Chargebacks
Updated: Mar 17
Let’s face it. When it comes to chargebacks, the odds are stacked against your businesses.
Chargebacks for outright fraudulent transactions are rare compared to those that occur due to so-called “friendly fraud.” Friendly fraud committed on purpose by buyers who understand the chargeback process.
Many buyers know how to play the chargeback game well, whenever a charge appears on their credit card statement, the buyer informs their card-issuing bank, claiming the transaction was not authorized, the product did not arrive, it was not what was ordered, or the seller did not respond to their call or other reasons why the transaction was invalid.
For the most part, the issuing bank will side with the buyer and allow the buyer to initiate the chargeback. This is the point at which businesses are most vulnerable.
Some of the largest payment processors in the country have the most pitiful chargeback systems in place. Old systems that are not designed to keep up with the latest technology.
Chargeback notifications are often sent by mail and are received by the merchant after the time limit for disputing the chargeback has passed.
Sometimes you don’t even know that a chargeback has occurred. You see that money has been deducted from your business bank account. The label on the debit transaction may not even refer to a chargeback. Leaving you to guess what the money was taken out for.
Some processors claim to have online chargeback management systems. But, these can be a nightmare to try to figure out. And reconciling the information in the reports with internal systems is difficult at best and impossible at worst. In addition, there is no way to download data and reports in easily usable formats.
Depending upon your payment processor to give you the information you need to control your chargebacks is a mistake. And puts your high-risk merchant account at jeopardy due to failures to chargebacks.
Take charge of chargebacks
Early alert system
There is a better way. Chargebacks can be easily controlled by implementing an early alert system. This will notify you as soon as a buyer calls an issuing bank to dispute a charge. Allowing you to quickly and even automatically refund the transaction. This prevents the dispute from becoming a chargeback. Depending on your industry, an early warning system can reduce chargebacks by 15% to 40%.
For chargebacks that do occur, consider outsourcing chargeback disputes to a third party that specializes in managing this function. It can be more cost-effective to outsource to a specialist who knows how and when to fight chargebacks than to train and manage an internal team.
If you receive a bogus chargeback, you can and should attempt to fight it by providing evidence to show that the transaction was valid. When the parties cannot agree, the matter may be arbitrated by a credit card network.
There is usually no way to appeal a final decision made by a credit card network arbitrator. Still, it does not mean that the merchant is or is not owed any money. Even if the merchant has a legal and moral claim to the money, an illegitimate chargeback might still be upheld if you don't have the proper evidence to support it.
It is the merchant's right to treat a reversed payment as an outstanding deb and use a debt collection agency to recover the debt!
A chargeback merely reverses a payment—and does not imply that the cardholder's debt is forgiven. Suppose a merchant believes that the cardholder still owes the transaction cost after a chargeback is approved. In that case, they can collect it through any method they deem appropriate.
Typically, this involves sending the cardholder a bill for the disputed amount and, if ignored, turning the account over for collection.
Debt collection differs completely from chargeback representation. You can pursue debt collection options before, during, or after disputing a chargeback with the issuer and card network.
What Are the Advantages of Using a Debt Collection Agency?
Keeping chargebacks low is vital to your business. If your chargebacks exceed the ratios set by the card brands, you can lose your ability to accept payments.
Implementing an early warning system is a prudent strategy to keep chargebacks under control.