Is a Chargeback the Same as a Refund?

A chargeback and a refund may be similar for a customer, but they are very different for the merchant. A chargeback occurs when a customer disputes a charge processed by a business. The amount charged to the customer’s credit card account is refunded, and the amount is deducted from the business’s banking account, along with a chargeback fee.

The payment transaction would previously have been authorized and cleared before it can be reversed through a chargeback. The chargeback relates to a dispute raised by the customer or their bank, and the full payment amount plus charges will be withdrawn from the business’s bank account. If a customer believes that they did not get the goods or the service they paid for, or what was provided was insufficient or inferior, they can raise a dispute and ask for their payment to be reversed. Or, a customer could dispute the amount billed and deducted and claim it is incorrect. A customer can also claim that they do not recognize the payment. And credit card fraud will also likely result in a chargeback.

How can businesses avoid chargebacks?

Although there are bound to be disputes from time to time, you can take measures to minimize chargebacks.

The most important thing to do is to have a clear refund policy at your store or on your website–even if that policy is “no refunds.”  Even so, when a customer is unsatisfied, it may be worthwhile to consider voluntarily refunding the purchase price, even if you disagree with the customer, because you will at least avoid a chargeback.  Chargebacks can result in chargeback fees, and if a business receives too many chargebacks as a percentage of total sales, this can result in the business’s credit card merchant account being audited, suspended, or even terminated.

Apart from that, basic protocols should be followed. Businesses should always check cards before they are swiped, and pay attention to the details printed on the card.

Also, consider the billing descriptor that your business is using. The billing descriptor is the name of your business as it appears on your customers’ credit card statements. Make sure you choose a clear billing descriptor that your customers recognize. If your customer does not recognize the charge when they see their credit card bill, they may initiate a chargeback because of that.  So, your billing descriptor should be the same as, or at least very similar to the name under which you do business.

Another way to avoid chargebacks is to work closely with your payment processor. They can keep you updated on happenings in the credit card industry, including how to minimize chargebacks. If you have been ignoring the communications form your merchant service provider, then it may be time to wake up and take note!

Finally, respond to customer queries and queries raised by your merchant service provider. Don’t ignore queries and hope that they will disappear. They often won’t, and when that happens you may lose money that you could have saved if you had taken prompt action.

Then there’s fraud:

Unfortunately, no business has a fool-proof way of avoiding the attention of fraudsters, but if you are aware that fraud is a reality you can prevent fraud before you are stung. Be on the lookout for suspicious customer behaviour or transactions and train your staff to do the same. Check all transactions, and if you are in doubt ask. Few customers will be offended by you asking them to verify themselves, but cons will often act offended or even just hot-foot it out of your store.

So, Is It a Credit Card Chargeback or a Refund?

To buyers, it may not matter that much whether they get a credit card chargeback or a refund. But to a retailer, there’s definitely a difference between a chargeback and a refund. After all, a refund is requested by the customer and initiated by the merchant. They typically follow posted return policies and guidelines, and as long as the refund goes through there shouldn’t be any issues.

On the other hand, a chargeback carries a whole different meaning. Instead of being initiated by the merchant, a credit card chargeback is a unilateral move on behalf of your customer with the issuing bank. Rather than voicing their concern with the retailer, they’ll request that the credit card issuer cancel and take back the payment.

Unfortunately, a credit card chargeback means that the issuing bank will recover the funds immediately once the request is filed, and then they’ll conduct an investigation to determine whether the request is legitimate. If there’s some kind of fraud or another issue, they’ll rule in favor of their client/customer. 

But even if the request was made in error or the customer filed the chargeback to get out of paying for a service or good, you’ll still have that credit card chargeback ding on your record, which could cause problems with you and your credit card processor, potentially leading to service disruptions or steeper rates and fees for your business.

Preventing Credit Card Chargebacks

For most retailers, the best way to prevent credit card chargebacks is to clearly define your return policy and make it easy for customers to return products or reach out to customer service if there’s an issue. If a customer doesn’t feel like they’ll be able to resolve the issue through the normal channels, they just might escalate to their credit card issuer instead. 

But by making it easy to grant refunds and working more closely with your customers, you’ll be able to reduce the instances of credit card chargeback, helping you save money and time on shifting those dangerous chargebacks into refunds instead.

For more information about whether a chargeback is the same as a refund, or to sign up for a merchant account, , please call (888) 924-2743 or go to Charge.com.