We all know that as consumers we have the right to dispute a charge on our credit card bills. This is one of the biggest risks in the industry to the issuing banks and subsequently to those authorizing credit cards. Each business authorizing cards should adopt a strategy to deal with this issue so that they reduce their risk exposure.
Here are some helpful hints to help you avoid and fight chargebacks.
1. Maintain an easy to use database of all your credit card transactions. When it comes time to fight a chargeback, the quicker and easier you can access the information the more likely you will be to better fight the dispute and win. At the same time, you need to take a variety of measures to secure this information as described in the Security section.
2. The more information that is on the receipt-specific items purchased, signature, return policy and address and phone number for location the better your chances of defeating the chargeback inquiry.
3. When you receive a chargeback against your account you will receive a description and explanation for the reason you lost the charge. Examine the reason given, learn from it, find out what was done wrong or missing that caused you to lose the charge and use this to prevent losing another charge for the same reason in the future.
The process begins with a retrieval request to the Merchant. If you receive a retrieval request, it is in your best interest to respond to it as quickly as possible. While a cardholder has 60 days from the day it receives its statement, the Issuing Bank has 120 days or more after the transaction date to file a dispute with the Merchant.
Failing to respond to a retrieval request will result in the transaction being “charged back” and you will not only lose the funds from that transaction, but also have to worry about the status of your Merchant Account. Each card brand has its own guidelines regarding the Merchant’s dispute process for a chargeback. The typical process is rather involved and may be escalated to a point of arbitration.
Chargebacks place an additional burden on the Merchant Bank and Issuing Bank, and since the Banks make a very low profit on each individual transaction, any deviation from the normal processing cycle digs into the profit margin substantially.
Chargebacks are also a burden to the Merchant receiving the complaint. Merchant’s must take time away from their normal business day to research records and pull together information to substantiate a transaction and keep the money they earned for a good or service they have already provided.
Disputes can cause a Merchant to have their Discount Rate increased, be subject to additional fees or even lose their Merchant Account. If the amount of chargeback(s) for a Merchant exceeds 1% of one month’s sales volume, the Merchant may be considered as having excessive chargebacks. Excessive cardholder disputes, just a person filing a complaint whether upheld or not, count as a negative against a Merchant Account.
The Merchant Services Provider may then deem the Merchant to be a high-risk and increase the fees that it charges the Merchant. There may even be a required deposit made to “guarantee” funds, as well as a hold placed on transactions prior to them being funded to the Merchant’s Account. Merchants with excessive chargebacks may have their Merchant Account terminated and placed on the MATCH (Member Alert to Control High-Risk) listing.
Issuing a credit works in much the same manner as a chargeback, only it is initiated by the Merchant. When a Merchant returns money from a prior purchase transaction to the cardholder, this is considered a credit. Because of the involvement of moving funds in the opposite direction of a regular transaction, this creates a burden on the involved financial institutions.
Dealing with chargebacks is not only difficult but can significantly hamper a business’ ability to secure competitive merchant processing rates. Treating your clients in a fair and transparent manner will solve most issues, but from time to time you will encounter clients where nothing can satisfy them. In such instances, the business will need to decide whether to “take the hit” and issue a credit or deal with the consequences of a chargeback. Unfortunately, this is just part of the cost of doing business.