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What are Chargebacks?

Chargebacks are a bane for any business that accepts credit card payments because they are usually unexpected, and they can dent your cash flow. But, while chargebacks are an unavoidable reality, taking steps to limit them is both possible and vital.

Chargebacks normally come from a dispute raised by a customer, but sometimes banks can raise disputes as well. When a chargeback occurs, a card payment transaction that was previously authorized and cleared is reversed. The bad news is that, if the chargeback is successful, the full payment amount plus charges will be withdrawn from your merchant bank account.

If a customer believes that they did not receive the goods or the service they paid for, or that what they got was insufficient or inferior, they can initiate a chargeback and ask for their payment to be reversed. Or, a customer could initiate a chargeback by disputing the amount billed and deducted and claiming that it is incorrect. A customer can also claim that they don’t recognize the payment. All of these are considered valid reasons for a chargeback.

What can you do about chargebacks?

Although it’s not always possible to eliminate chargebacks completely, you can take steps to minimize them happening. Here are a few simple steps you can take:

  • Train your staff on every aspect of accepting credit card payments, and ensure that they understand how the card payment process works.
  • Consider your billing descriptor carefully: this the name of the business you choose to appear on your customers’ statements when you open your merchant account. It is very important that you choose a clear billing descriptor that your customers will recognize at the end of the month, and that you use a payment processor that allows your business name to appear on your customers monthly statements (not theirs).
  • Keep accurate customer records by, for example, making customers agree to your terms of services and supply or by letting them sign contracts or order confirmations if necessary. Also ensure that your invoices have detailed terms of service and supply printed on them to protect you if there are disputes.
  • Don’t ignore your customers: they will often complain to your business before contacting their credit card company.  Many disputes can be resolved to the satisfaction of the customer without the need for a refund.  And sometimes, it may even make financial sense in the long run to give a refund to an unreasonable or demanding customer rather than blemish your company’s record with a chargeback. Even an unfounded chargeback can cause trouble down the road, especially when combined with additional fraud chargebacks from other customers.

All of these steps are easy to implement, and none of them are rocket-science. By simply being aware that fraud chargebacks can happen and taking these common sense precautions, you can limit their effect on your cash flow and your business.

And if a transaction is fraudulent?

No business can completely eliminate the possibility of fraud, but if you understand that fraud is a reality, then you can limit fraud, and keep it to a minimum. Always be on the lookout for suspicious transactions and train your staff to do the same. Check all sales transactions as they happen, and question customers if necessary: better to be safe than sorry. Few genuine customers will be offended if you check something, since it is primarily for their own protection. It’s usually only fraudsters who would feign offense and, perhaps, back out of the transaction, and in that case, you have saved your business from loss of income.

For more information about chargebacks and what they mean for your business, or to sign up for a merchant account, please call (888) 924-2743 or go to


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