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Protecting your business from chargebacks.

If your business has never had a chargeback - congratulations. That means a customer has never disputed a credit card transaction.

Most businesses aren’t so lucky. Rather than debate an issue with a merchant, customers sometimes contact the bank issuing their credit card to register a dispute and ask for a transaction to be reversed. While these chargebacks are good for customers who find they’re working with unscrupulous merchants, they can pose a threat to honest businesses that haven’t taken steps to minimize chargebacks.

Here are some of the major reasons customers initiate chargebacks – and what you can do to control the number your business receives.

Unauthorized transactions

The most common cause of chargebacks is credit card fraud. Since the introduction of chip (EMV) cards, you – the seller – are liable for fraudulent transactions if a chip card is swiped, rather than inserted or tapped on a chip card reader. In other words, it pays to stay current on credit card processing technology.

For online purchases, be sure to take advantage of any fraud protection services, including CVV2 and AVS (Address Verification Services), offered by your bank. Also establish extra credit card verification steps for transactions originating in countries known for credit card fraud.

Customer misunderstanding

Customers sometimes deny making purchases that they did, in fact, authorized. To help protect your business from claims of unauthorized transactions, make sure to obtain as much information as possible from customers – especially on phone and mail orders. Requesting both their address and the CVV2 on the back of their credit card can help.

Unfamiliar business name

Fear that a credit card has been compromised is real. That is why customers who see payments to unfamiliar companies usually initiate chargebacks. To minimize unnecessary chargebacks, make sure credit charges are tied to a business name customers recognize. For example, customers may know your product, but not the company behind it. Some businesses have all but eliminated this problem by including their website address or phone number as part of their name on the credit card billing statement. This gives customers an easy way to contact you directly before initiating a charge-back.

Other credit card Issues

Chargebacks can occur if the credit card processing system cannot find a valid account number for the credit card used to make the purchase. So be sure to configure your system to reject expired or invalid credit card or account numbers.

System errors can sometimes result in duplicate charges on a credit card. This is especially common when customers making online purchases press the PAY button more than once. Look at solutions that flag duplicate charges so you can address them before a chargeback is necessary. If you process credit cards manually, transactions are also subject to human error. To minimize chargebacks, avoid key-entry and manual processing whenever possible.

Goods that aren’t shipped, arrive damaged or don’t meet expectations

It’s understandable that a customer might dispute a credit card charge if an order never arrives or includes defective items. You can help your case by tracking shipped orders and keeping copies of your shipping receipts. You might also work with your shippers to identify packaging solutions that minimize damage during freight.

In other cases, a product or service simply may not meet the customer’s expectations. To minimize these kinds of chargebacks, it’s important to set customer expectations. Explain your warranties and return policy on your website, indicating when and how customers can dispute charges. Also, track your chargebacks to see if they are tied to a particular product or service, and consider ways to improve quality.

The bottom line:

Chargebacks can eat into your profits. When they are excessive, they can also hurt your reputation with customers and credit card processors alike. By learning from them and taking steps to prevent them, you can not only protect your business, but improve your products, your business processes and – ultimately – customer satisfaction.

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