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How Merchants Can Avoid Credit Card Chargebacks

Avoid chargebacksIf you own or manage a business that processes customer credit cards, you’ve probably had a customer dispute at one time or another that may have resulted in a credit card chargeback.

Unfortunately, chargebacks happen. It’s just the nature of credit card processing transactions between buyers and sellers. Sometimes, merchants are not even at fault.

The bad news is that chargebacks can result in hefty fees or penalties. And worse, even with a chargeback percentage as low as 2%, a business’s merchant account can be permanently closed. When this happens, the merchant can land on a black list know as the terminated merchant file (TMF).

If you’re wondering how you can protect your business against chargebacks and avoid the dreaded TMF, here are some tips.

Why Do Customers Dispute Transactions?

First, let’s review the some of the common customer disputes that can lead to chargebacks:

  • Customer did not receive product
  • Product or service was different than described
  • Incorrect billing, where customer may have been charged twice
  • Customer failure to recognize purchases on credit card statement

In all of the above scenarios, it’s easy to understand why a customer may have a problem with a transaction.

Addressing Common Disputes

Customers are often quick to dispute the charge on their credit card rather than attempt to contact the merchant to resolve the issue. This is usually the case when a customer does not receive the product or the merchandise received was not what they expected.

Online retailers deal with these situations more than physical stores. Customer perception of physical products can be drastically different online than in person. Sales for non-tangible goods or services also face this challenge, as customers may feel that they did not get what they paid for.

In these situations, the merchant has little control. The best defense against chargebacks is to address any customer complaints or concerns immediately and attempt to resolve the problem with a replacement or refund.

Sometimes billing system or even human error causes a customer to be charged multiple times. Fortunately, more often than not, a customer that is charged multiple times will bring it to the attention of the merchant before disputing the transaction with their bank.

In these cases, the merchant has the opportunity to appease the customer and squash the dispute. But this situation also requires a merchant to be diligent with customer service and quickly apply refunds.

Although it may be ignorance on the part of the customer, the customer may see a charge on their statement and forget that they made the purchase or not recognize it. Immediately they think fraud and decide to alert their bank to dispute the charge.

By using a payment descriptor that is clear and obvious, customers will be less likely to see unrecognizable charges, leading to fewer disputes do to customer confusion or ignorance.

Protecting Against Chargebacks

Although the customer is not always right, having that mindset can be beneficial to a merchant. After all, it’s the way card-issuing banks see things. Merchants that are conscious of their customers’ concerns and address any problems right away stand a better chance of turning a poor customer experience into a good one.

However, sometimes customers are never satisfied. In these situations, good record keeping can go a long way. In the event a merchant has to provide documentation to argue their position, having documentation of transaction history and communication is beneficial.

Possibly the best shield against chargebacks for merchants is the use of a chargeback protection service. These services alert a merchant anytime a customer begins the dispute process, allowing a merchant to quickly handle it before it becomes a full-blown chargeback.

Have Questions?

At The Transaction Group, we’ve been assisting business with their merchant account needs since 2004. We specialize in high risk credit card processing, regularly dealing with merchants that have had chargeback challenges.

If you have additional questions about how to avoid customer credit card chargebacks or have other merchant account questions, we’d be happy to help. Call us at 888-383-8056.