A chargeback occurs when a customer contacts their payment provider and claims that the payment made was illegitimate. This can lead to the bank reversing the payment, and you the merchant getting stuck with the loss.
Chargebacks are often one of the largest headaches for merchants who are simply trying to run their business. They are essentially a refund, with no return of goods or services.
When do chargebacks occur
A chargeback occurs when a consumer contacts their bank or credit card company and explains why they are issuing the request. The funds from the sale are then placed on hold for up to 3 months until the case is settled. If the claim is found to be sufficient, the customer receives their money, otherwise the funds are dispersed to the merchant and the claim is voided.
In a perfect world, a chargeback would only occur in the event of a fraudulent charge. This can be caused by a number of things such as a credit card scammer or a shady merchant. The system of chargebacks was invented to protect the customer. However, that hasn’t stopped the system from being taken advantage of.
If the consumer feels they didn’t get what they paid for, they should in fact contact the merchant and see if something can be worked out. This would be the ideal situation for both parties. However, when a customer doesn’t follow this route and goes straight to the bank, it is essentially a form of theft and only harms the merchant.
How to Protect Yourself From Chargebacks
The best way to protect yourself is to provide your goods and services for a fair price and at the best quality you can provide. However you can look elsewhere by finding a merchant service provider that has chargeback protection at a reasonable rate.
If you provide services, a thorough contract with detailed descriptions of what will be provided can help protect you from being taken advantage of. If you’re selling goods, a well documented payment system is paramount.
Training your employees to identify fraudulent activity will help you out in the long run as well, however this can be difficult due to new practices popping up constantly. In the end one of the most underrated methods of protection is good customer service to go along with a high quality experience for your customers. Giving no reason for potential chargebacks will keep you safe more often than not.