What is a chargeback and how it can affect your business

A chargeback is when a customer disputes a transaction and your credit card provider makes you (the retailer) pay for the claim. This can cause various issues with your business. The reason a customer disputes a transaction can also vary.

Chargeback on a credit card

A big reason for a chargeback is due to system error. Sometimes the customer can be charged twice for one transaction. You wouldn’t know it until a chargeback dispute is in progress. This is not even your fault however you are liable to pay not only for the customer to get the money back but a chargeback fee that can go up to $100.

Another big problem is for online merchants. Sometimes the product does not reach the customer. Even though this is a shipping issue, you are also responsible to pay all fees.

The last big issue is credit not processed. If a customer makes a return and their credit card is not refunded the amount they were expecting, then you can be hit with a chargeback.

There are a few reasons a chargeback can affect your business. The biggest and most painful are the fees. There is always going to be a fee associated with a chargeback. Even if you win a claim against a customer, you are still going to have some sort of fee.

Shopping button
Online shopping is the cause of most chargebacks

The most import way your business can be affected is the reputation. Not the reputation to the customer. The reputation to your sponsoring bank. If you accumulate enough chargebacks your company will be considered high risk. When you are high risk you may be subject to a higher monthly rate or even in an extreme instant, your processor may shut you down completely. When that happens you can be shut down for up to a month until you find a new processor that will accept you.

Preventing chargebacks is not as simple as it seems. There will always be mistakes and chargebacks will always happen. With that said you can do a few things to minimize the risk. First and most important is to be an honest seller. Only sell things to people you know are of the highest quality and have a smaller chance of a return. Next is to watch out for fraud. Big orders that don’t make sense can be a huge red flag. There are times that ot can be real but you must always look into it.

If you would like to know more about chargebacks and fees associated contact your credit card processor and ask. If they are a reputable company, they will pick up the phone and answer any question you may have.