Should a Merchant Issue a Refund Before a Chargeback?

Vendors stand to gain a great deal by accepting credit cards, from gaining access to a larger customer base to increasing revenue and cash flow. However, there are downsides that have to be taken into account. One of these downsides is the chargeback. Chargebacks are part of a banking policy which allows customers to request a refund if they have made a credit card payment. There are several legitimate reasons to initiate a chargeback, but some customers use chargebacks for fraudulent purposes.

How does a chargeback work?

The exact process of a chargeback differs from bank to bank, but one thing runs true across the board: it may take up to three months to complete, and during this time, the funds from the sale are frozen. The chargeback is filed with the issuing bank, which then contacts the merchant. The merchant must prove that the transaction was legitimate, or the funds are returned to the customer who also retains possession of the sold product.

Once a chargeback has been initiated, the merchant should not try to refund the customer, because the chargeback process, if successful, will return the funds to the customer automatically.

How to prevent chargebacks

Merchants have several options if they want to prevent chargebacks. The first, and perhaps most effective method is the refund. If a customer asks for a refund, it’s usually in the best interest of the merchant to issue the refund, even if the request is made on shaky grounds. Without a refund, the customer may initiate a chargeback, and the vendor would stand to lose the product, the money and the fees associated with the process.

Outside of that, a merchant should make sure that a proper card handling protocol in place. Often times, a chargeback may be initiated due to credit card fraud, which is why it’s important to work with a processor that has sufficient security and payment descriptors. For companies that provide services, it’s always a good idea to work with a detailed contract which clearly states what the service does and does not include. Otherwise, a customer might make the claim that they did not receive the service they paid for.

Having good customer service and customer relations is another key element. If a customer feels comfortable enough to approach you with a problem, they will be less likely to file a chargeback in order to settle a dispute. Building customer loyalty and trust is one of the best ways to avoid chargebacks coming from disgruntled customers.

It is also extremely helpful to have your refund policy clearly displayed for customers–even (indeed, especially) if your refund policy is “no refunds.”  This will not only help to avoid refund requests and chargebacks, it will also help you to prevail in the event of a chargeback.

For more information on how to deal with chargebacks or to sign up for a merchant account, please call (888) 924-2743 or go to

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