In the easiest terms, chargebacks are disputed transactions. These are charges that customers dispute for all card brands (Visa, Mastercard, Discover, American Express, ACH and Pin Debit). When a dispute is made, the issuing bank temporarily reverses the transaction and the cardholder receives a temporary credit.
Chargebacks are meant to protect consumers from unauthorized transactions, billing errors, and quality of goods or services. Merchants can challenge a dispute from the issuing bank to confirm the validity of the charge.
What Intuit Does
Intuit® works hard to investigate chargebacks and to assist our merchants in providing the correct information for any dispute. We are happy to share that this past fiscal year, we were able to increase our merchants’ chargeback win rates from 68 percent to 84 percent! Our goal is to help resolve these disputes in our merchants’ favor. However, all remedies to a chargeback must be in compliance with the Card Association Rules.
All merchant rebuttals are reviewed by a chargeback specialist to ensure the cardholder’s dispute is addressed and, most importantly, remedied. The specialist will reach out to the merchant if additional documentation is needed to build the strongest case possible the first time, upfront. One of the specialists’ primary objectives is to help minimize the loss for the merchant. Another objective is merchant education and what can be done in the future to prevent similar disputes.
If for any reason the merchant’s rebuttal is denied by the cardholder’s issuing bank, the merchant is once again notified and typically has the opportunity to challenge a second time. There are instances in which a second challenge may hold risk, such as Visa and Mastercard arbitration, where there could be a fee assessed to the party that is ruled against. If a merchant wishes to have a case go to Visa or Mastercard arbitration, the chargeback specialist assigned to the case will once again review and advise the merchant of the case’s strength, and recommend whether to continue to arbitration or settle outside of the credit card dispute process. One example of a chargeback is a customer disputing a transaction for ‘Not as described.’ Your customer ordered a blue recliner and received a brown chair. When the cardholder received the product, they contacted the issuing bank to initiate a chargeback. At this point, if the merchant is able to prove that the order received was correct, the decision would be in our merchant’s favor.
Protect Your Business From the Risk of Chargebacks
While chargebacks can be frustrating, time consuming and eat into your margins, they are usually a small percentage of your total transactions. Moreover, since you now know the reasons for chargebacks, you are better equipped to protect your business/company from them. Below are some tips that can help you prevent chargebacks.
- Stick to a DBA (Doing Business As) that your customers will recognize. Most customers initiate chargebacks when they see payments to companies that they don’t recognize. Keep in mind that your customer may know what they purchased, but may not recognize the company name appearing in their statement. It is up to you to ensure your business description is understood by the customers.
- Ensure that your phone number and contact information are on all receipts and invoices. If customers do not know what they are being charged for, they can contact you directly. This will reduce instances of chargebacks.
- Fraud is the most common cause of chargebacks. When a customer’s credit card is fraudulently used for a transaction, the merchant is held solely responsible. Therefore, it is up to you to ensure that the credit cards you are accepting to purchase your goods or services are validated by using the following methods:
- For Online Transactions, require positive AVS (address verification service) and ensure shipment is being sent to the billing address.
- For face-to-face Transactions, check photo identification to make sure that the credit card name matches.
- For all transactions, have a clear and visible cancellation policy. Make sure you have your cancellation policy printed on receipts for face-to -face transactions. For online or phone transactions, ensure there is an acceptance of the cancellation policy by a verbal acknowledgement, check box or signed document.
- Getting to know your customers and building relationships with them can also assist in preventing chargebacks.
- Ensure that you retain documentation supporting the sales, such as signed invoices, signed work orders, shipping documents, signed receipts and cancellation policy. All of these are compelling evidence that could win a chargeback.
- Sometimes, chargebacks are initiated because the goods or services purchased are substandard or did not meet the customer’s expectations. For online and phone orders, make sure you provide a full description of the product/service purchased and clearly indicate what the customer should expect. Your refund policy should indicate how customers can return or exchange goods or services provided. Some issuing banks will advise your customers to contact the merchant directly as an attempt to resolve any issues prior to initiating a chargeback. It is in your best interest to work with the customer to resolve any issues prior to the chargeback process.
- Do not accept an expired credit card, make sure you obtain authorization, and get a signed or imprinted receipt, if applicable. If you are shipping any large orders or any sales that are unusual for your business, contact the customer to confirm. If you cannot reach the customer, this could be an indication of a fraudulent transaction and should not be shipped until you verify with the cardholder.
For additional information Disputes and Chargebacks please see the articles linked below:
How Do I Reduce Chargebacks?
Chargebacks for QuickBooks® Online
Editor’s note: Dana Flynn, manager of the Chargeback Department for Intuit, co-authored this article.