What is the Purpose of a Chargeback?

It’s a term that can send shivers down the average retailer’s mind. It can be just a few dollars per charge, but it can quickly pile up, and it can do permanent damage to your business. But what is it? A chargeback is a process by which a cardholder can try to cancel a sale and receive a refund by contacting their credit card company, and it can have consequences for merchants who receive too many of them. As a business owner, you can talk to the bank, or even to your credit card network, challenging the refund. In some cases, the reversal ends up being a mistake, so the money comes back to your account.

Chargeback penalties

Your business may be flagged as suspicious or fraudulent, which could get your accounts locked. Even if the bank doesn’t lock you out, they might label your account high-risk, or you could even get blacklisted. This means that beyond chargeback fees, your bank may raise your other account fees, to protect themselves from any money they’re forced to refund. One way to think of it is that the bank is responsible for any chargeback losses that they are unable to get back from the merchant, so they try to recover part of that by charging extra when chargebacks occur.

Protect Yourself

It’s important to do what you can to avoid chargeback fees. Start with the basics – customers often demand refunds out of frustration or confusion, so keep them informed. When they pay for a purchase, send a receipt with clear details, an image of their purchase, and a tracking number. Consider checking in when they receive their product, to be sure all is well. In your store, on your website, in confirmation emails, and even on the back of the receipt, print a clear refund policy, including multiple contact details. If your customer can easily reach you 24/7, they’re less likely to go over your head to the bank. Most importantly, make sure that the customer will see the name of your store on their credit card bill, so that they’ll recognize the charge. It’s always a good idea to tell your customers exactly how the charge will appear on the customers’ credit card statements.

For more information on the purpose of a chargeback, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.

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