What Start-Ups Need To Know About Chargebacks

Posted on Dec 26 2013 - 10:15am by Jessica Velasco


As a new business owner, you may not be aware of chargebacks. Sooner or later, you will have to deal with them – and you won’t like it. 

Essentially, a chargeback is a credit card refund.  The customer contacts his credit card company and refuses to pay for your product or service. The credit card company will then withdrawal the funds they previous paid your company. 

As bad as it sounds, it gets worse. You won’t get any type of notification for a chargeback. You’ll look at your account one day and notice a lot of money is missing. Of course, there are fees associated with chargebacks as well. Naturally, you’ll be the one paying those fees. 

Any product you sold is unlikely to be returned. This means you’ll lose any money needed to make the product, as well as any profit you would have made selling it. 

Don’t Be Ashamed

For some reason, business owners seem to be embarrassed by chargebacks. This makes them hesitant to discuss them (and forget about getting a business owner to admit suffering from a chargeback!). There’s no reason to feel this way. 

The truth is every company has to deal with this financial setback. While it’s extremely unpleasant, a lot of times it’s not your fault. 

Sure, if you’re selling a cheap product that doesn’t do what it’s supposed to, your chargebacks are deserved. But meeting high standards won’t help you avoid chargebacks all together. 

There are people out there who are going to rip you off, if they see the chance. Unfortunately for you, chargebacks are very easy for people to take advantage of. If someone is firm enough with his credit card company, he’ll eliminate almost any charge. 

Therefore, you don’t need to be ashamed if a chargeback does creep onto your horizon. There is no need to feel like a failure. Brush yourself off, learn from your mistakes, amp up your chargeback prevention methods, and then jump on board to educate other start-ups! 

Be Proactive

While you won’t be able to eliminate chargebacks entirely, there are several steps you can take to reduce them. If you do things the right way, you can make it easier to fight any chargebacks. 

Provide Quality Goods and Services

Make sure your products or services are top-notch. If people feel like they aren’t getting what they paid for, they’re likely to seek a chargeback. 

Once you have your quality items ready for sale, give them accurate product descriptions. This will also help ensure customers aren’t deceived during the buying process. Quality images (that are large enough to see specific details) can help a lot. 

Avoid Fraudsters

A major reason for chargebacks is credit card fraud. This means the person that made the purchase didn’t actually own the credit card. When the real card holder sees the charge, they will dispute it. To avoid those engaging in credit card fraud, look out for the following warning signs:

  • Extraordinarily large purchases
  • Orders place on several cards shipping to the same address
  • Orders placed on the same card shipping to different addresses
  • Many different orders coming from similar card numbers or the same IP address 

These situations should be a warning to you that something isn’t right. Do your best to verify these purchases. Many of those attempting to commit fraud will back off once they realize you are paying close attention to them. 

Provide Stellar Customer Service

In our current age of digital shopping, customer service might not seem as important as it once was.  After all, shopping online is very impersonal.  

However, it is essential to implement top-notch customer service. Here are some things to consider:

  • Answer the phone when it rings! Imagine how frustrated you would be if you had to sit on hold for hours and hours. You might be tempted to give up, right? Your customers are the same. If you don’t answer the phone, they’re likely to turn to someone who will – their credit card company.
  • Reply to all emails. If you can’t personally reply to all messages right away, send out an auto response. Let customers know you received their query and are working on their problem.
  • Make sure you check your social media platforms regularly too. To you, social media is a marketing outlet. To them, it is a means of communication. Don’t ignore customer complaints that come in via Twitter or Facebook.
  • Make sure your return policy is easy to find and understand. Include a link in all stages of the checkout process. You should also include a link in the purchase confirmation email you send out. 

Seek Professional Help

If the total amount of your monthly chargebacks exceeds 2% of your total sales, your merchant processor could simply shut down your account.  That means, you can no longer accept credit card payments (AKA – you go out of business). 

Therefore, chargeback management is essential.  Fighting against chargeback fraud is the only way to stay afloat.  However, the chargeback representment process is time consuming and challenging. 

Most business owners don’t have time to effectively manage the chargebacks they receive.  That is where professionals can help.  A chargeback management company, like this one, will assess specific areas of your business (like fraud detection and customer service).  The pros can help you make necessary changes.  

Then, when chargebacks do slip through the cracks, the management firm will go to battle for you.  You won’t have to worry about fighting each and every chargeback on your own. 

Now That You Know

Now that you have a basic understand of what chargebacks are and why they occur, it will be easier for you to avoid them. Keep in mind, it’s next to impossible to completely eliminate chargebacks, but that doesn’t mean you should take a passive approach. 

It’s important not to be embarrassed about chargebacks. Even the best companies have to deal with them. Remember that chargeback prevention is a sure way to help keep your stress levels low and your bottom line high.

Photo Credit: Wikimedia/Epic Fireworks

About the Author

Jessica Velasco regularly works with eConsumerServices, an internet fraud detection company. She helps protect consumers and businesses from credit card scams and all other forms of dishonesty. Jessica has learned from past experience that great change usually brings about great potential for criminal activity. She does her best to help others stay safe.