Ever ordered something from a business and it never showed up on your doorstep? Has someone ever bought things without your permission using your credit card? If you’ve ever been a victim of a scammy business or a sleazy hacker, you’ve probably had to file a chargeback.
When you’re on that side of the transaction, the chargeback was probably a big relief to you. But when you’re the small business on theotherside — and you didn’t do anything wrong — it sucks, to put it plainly.
Sometimes chargebacks happen. Though it’s not the end of the world and you will get through it, you can still take precautions to prevent chargebacks and protect your money when they do occur.
A chargeback is when someone disputes a charge on their card to their bank account instead of with the business. It may happen after a customer tries to work with the company to receive a refund but does not. While credit cards are most commonly known as having a chargeback policy, debit cards typically do, too.
The difference between a refund and a chargeback? A refund is a return of money from a business to the purchaser. A chargeback, in comparison, is a forced return initiated by the business’s bank.
For consumers, chargebacks can make them feel safe and protected from dishonest companies. For honest businesses, though, they can represent a threat to your income.
Chargebacks can be requested by a consumer for several reasons, including:
Ideally, if a customer makes a duplicate order or feels that the quality of the content is, well, not so great, they should contact the merchant (aka the business) first. But of course, this doesn’t always happen. That’s how chargebacks might occur.
False chargebacks, also known as chargeback fraud or friendly fraud, is when a consumer tries to play the bank by purchasing something and then requesting a chargeback after they receive the product. (Not very friendly, huh?) This means that someone can buy your product, get access to it, and then say it was a fraudulent or unfulfilled charge. Not cool.
A consumer makes a request through their bank to initiate a chargeback. Once they do, an investigation typically occurs. The bank then requests an explanation and justification for the charge from the merchant.
If the merchant cannot give a justification for the charge or simply doesn’t respond to the request, the bank forces a refund from that merchant's bank to the consumer. If the charge is justified or explained, the bank typically closes out the investigation and notifies the buyer.
Banks typically side with the customer, thanks to consumer protections in place with most banks. That’s why it’s critical that you keep a copy of all transactions and have a solid refund policy in place.
While chargebacks are common, you can take steps to minimize or prevent them altogether.
We’ve all seen that weird charge on our account from a merchant we’ve never heard of. So, we call the bank, start going through the process of canceling the charge, requesting a chargeback from the company, and getting a new card.
Then the bank says that that merchant is also known as X brand name. And then we remember — oh crap, we did purchase something from them! Whoops.
It may be an honest mistake, but in reality, if a customer has to go through that hassle they might not want to purchase something from you again. You’re also getting charged every time a chargeback request happens, regardless of whether it’s legit or not. Avoid this and just be consistent with your name. (Psst: We have an entire blog post series on how to pick a great name for your biz!)
You can’t sell dollar store shoes at Chanel prices. (You can quote us on that.) If you’re selling a product, be real about the cost and quality. Figure out what the market for a product like yours is and make sure it could go head to head with a competitor. Otherwise, you’ll be receiving requests for money back from customers.
You don’t know exactly what you’re going to get when you buy something off the internet. That’s why some people hesitate to buy when there’s not a clear way to get their money back. That’s also why we at The Contract Shop® have a 14-day, money-back guarantee, no questions asked refund policy. (Okay maybe we have a few questions, but that’s just for our improvement!)
While we’re not telling you to be the next Amazon, we do think that having a clear refund policy can help build trust and prevent chargebacks.
If you’re flaunting a great refund policy but the refund takes forever, what good is that? Plus, if you don’t issue a quick refund, the customer might be afraid you’ve taken the money and will request a chargeback from the bank. And isn’t that what we are trying to avoid in the first place?
You can be proactive by using third-party chargeback protection tools from the get go. Companies like Kount and Stripe offer to handle disputes for you and cover the costs. Keep in mind, though, you’ll typically pay a fee for protection.
Most importantly, if you are hit with a chargeback, you’ll want to respond to the claim quickly and in enough detail that the bank understands you are not at fault. Responding in a timely manner to the bank can also help ensure your evidence is taken into account.
Because banks tend to side with their customers, someone may choose to file a chargeback rather than speak with you about getting a refund. However, if you have an easy and accessible refund policy, you can cut down on time spent fighting chargebacks. A great policy will encourage your customers to buy from you with confidence, too.
Protecting your business is important. That’s one big reason we founded The Contract Shop®! Dealing with chargebacks and refunds can be a huge hassle. So, if you want more intel on creating happy customers and less refunds, check out Refund Recon™!This template and tutorial pack will teach you everything you need to know about creating a stellar refund policy that’s clear, fair, and will save you more of the money you make. Oh, and it’ll reel in more happy, long-term customers. Gain access to Refund Recon™ now!
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