Best Practices for Protecting Your Small Business from Chargebacks

Best Practices for Protecting Your Small Business from Chargebacks

When your customer disputes a credit card transaction, you lose out on more than just the sale. Most likely, you will also have to shell out extra fees and other costs.

Fortunately, there are steps you can take to reduce the number of chargebacks that hit your business.

Understand the Most Common Reasons for Chargebacks

The best way to prevent disputed transactions is to first understand why they happen. They most commonly occur for the following reasons:

  • Identity theft when someone’s card is fraudulently used to make a purchase.
  • The customer does not receive the product they ordered.
  • The customer believes the product or service was substandard.
  • The customer’s charge was incorrect in some way or they do not recognize it.

Follow Your Card Processor’s Protocols

Being careful can drastically reduce disputes. For card-present transactions, check the expiration date and input the security code into your system. If you want to also process transactions over the phone or online, you may need to get permission from your merchant account provider, being certain that you understand exactly what information they require.

Make Sure Your Payment Description Is Clear

Many disputes happen when a customer does not recognize the name of a business associated with a charge. For that reason, be sure that your payment descriptor reflects a name such as your store name that your customer will easily recognize.

Deal With Chargebacks Promptly

Whether the transaction occurred with a payment taken on a mobile credit card reader, a fixed terminal or over the phone, your response to a dispute should be fast and proactive. Your payment processing company will most likely notify you as soon as a charge is disputed. Take it upon yourself to contact the customer immediately to do everything you can to resolve the issue.

Watch for Red Flags

Although you cannot always spot fraud, there are certain warning signs. Incorrect security codes and billing and shipping addresses that don’t match are the most common. When one of these appears on your radar, contact the customer to confirm the sale. Be sure that your employees are also up to speed on these issues by providing thorough training in chargeback prevention strategies.

Write It Down

Keep clear and accurate records of all customer transactions, dates, amounts and authorization information. Retain all signed contracts or other documentation. These hard copies can come in handy if a customer is fighting a charge or simply forgets they made a purchase.

Choose Your Battles

Contesting every chargeback may not be worth your time and could damage your relationship with your payment processing company. However, you don’t need to take all chargebacks lying down either. Focus on those you are reasonably sure you can win.

No business can totally avoid credit card disputes. They are an unfortunate fact of commercial life. However, you can keep them to a minimum with knowledge, planning, documentation and training.