Preventing Chargebacks for Online Sales

Just about every merchant will get the dreaded chargeback notice sooner of later. Unfortunately, it’s part of ecommerce and truly hard to avoid. Bearing this in mind, merchants are forced to stay on their toes as the credit card company place all the risk upon merchant's shoulders. An important part of running a successful ecommerce website is minimizing chargebacks so as to not only avoid monetary loss but also to stay in business. If you store racks up too many chargebacks, it won’t be long until the store’s merchant account is revoked.

What is a chargeback?

A charge back occurs when a customer disputes a charge on their monthly statement. The customer calls the issuing credit card company and answers a few question on the charge in question and then the chargeback process is set in motion. A letter is then sent notifying the merchant of the chargeback or charge dispute and from this point forward, it’s up to the merchant to prove the charge is legitimate. If the merchant can’t successfully argue this case, the charge is reversed and money is automatically withdrawn from the merchant’s bank account. To make matter worse, the merchant is then charged with a chargeback fee that is typically in the $20.00 dollar range.

If you get a chargeback letter, you must start immediately providing documentation of the sale. This includes the ever-important delivery confirmation signature. Each of the major credit cards has different standards of acceptable documentation. For instance, American Express will on accept the delivery confirmation signature of the card holder that placed the order. This means if a spouse or a co-worker signs for the package and the charge is disputed, the merchant is left holding the bag. This type of aggressive policy that tilts the table against the merchant is a major problem for ecommerce small businesses.

How to Prevent Chargebacks

1. If feasible, ship all your packages via a traceable method and utilizing the delivery confirmation and signature required options.

2. Only ship packages to the credit card holders billing address. Shipping to a different address can unleash a whole host of problems including chargebacks.

3. Make sure your store’s name or clear DBA (Doing Business As) name appears on the customer’s credit card statement. Using a different name in your merchant account setup can lead to confusion that in turn will lead to chargebacks.

4. Respond to the chargeback notice immediately. Often the credit card company will only provide the merchant an extremely short window of opportunity to dispute the chargeback. If the merchant fails to respond within the given timeframe, the chargeback is processed by default.

5. Have your return/refund policy clearly stated on your Website. Make it a requirement that customers read the policy before their order can be processed.

6. Maintain copies of all customer invoices, tracking reports, and visitor data (referrer, IP address, etc).

7. Avoid international orders to known high fraud countries.

8. Provide accurate descriptions and images of your products on your Website.

9. Manually verify cardholder data with the customer's bank before shipped and orders you think may be high risk.

10. Contact the customer immediately upon receiving the chargeback notice. Be polite yet firm that your company takes fraud very seriously and may take legal to protect itself.

11. Be very suspicious of high-ticket sales requested to be sent next-day air. Follow up on these types of orders will a phone call the customer and the customer’s bank.

12. Don’t be afraid to ask for a fax of customer ID or to sign charge authorization form.