So your business is doing great, you are getting a lot of revenue due to the increasing amount of sales and your business is more established than ever. Right? Wrong, chargebacks are increasing by users thinking that they are entitled to receive a chargeback or a refund of the funds used to receive your services.
Are chargeback and a refund the same?
No, but similar. When disputing a specific transaction, you’ll encounter typically one of those options to get your money back. A refund would come directly from a merchant, while a chargeback would be coming from your card issuer.
There are many reasons why a customer may file for a chargeback. For example, when they didn’t receive the services that your company offers. But what if they did get the service and are still trying to abuse the system and get their money back?
Customers sometimes received the service or product or violated a term in the agreement and they still call their credit card issuer to dispute a charge assuming that the banks will support their claim and protect them by accepting the chargeback and return their money without many inconveniences. A lot of times customers get away with it and those chargebacks will harm your business severely in the short and long term. In most cases, your business will lose revenue from the transactions, time, business resources, services you provided, and chargeback fees.
But did you know that when a customer files for a dispute, you can either accept it or appeal it? If you accept it right away, or if the credit card issuer denies your appeal you’ll receive a chargeback claim admitted that will enforce you to return the money to the customer.
Also, if the number of claims is too high, your business will be in a dangerous condition due to several reasons. First of all, the resources that your staff will have to dedicate to investigating those claims which may be never-ending work for the employees and this could be highly costly to the company.
Another repercussion is that by receiving many claims, your chargeback ratio will be high, therefore not only you’ll pay higher processing fees but also your merchant might consider canceling your account, and then, you’ll need to find another merchant service willing to accept high-risk merchants which is not easy to find and if you do, the transaction fees will be much higher.
You might ask yourself, are there any tips to follow so that my business doesn’t get severely affected by the chargebacks? The answer is yes.
My number one tip to avoid businesses being severely punished by chargebacks is to make sure that the terms are clear to the customers.
The details about your services should be clear. Provide a customer support phone number where the users can ask questions, or add a frequently asked question section to your website providing as many details as necessary, so that the customer knows the rules and terms of the service. By doing so, you’ll create an atmosphere of trust, and provide information to the potential clients therefore, you won’t create false expectations for the users due to an avoidable misunderstanding that can escalate in an unpleasant way both to your customers and to the business as well.
Now the question you might have is. in the case that the terms and conditions were very explicit and clear and the customer still wants to get a refund or a chargeback, what can I do?
In this case, you should obtain evidence proving that the user actually received the services that you provided or they violated an important term specified on your website or agreement. Make sure you collect all the necessary evidence before the deadline or you’ll lose any chance to back up your position and arguments and even though the business acted in a rightful and highly professional manner, it will lose the case granting a free ride to the “unhappy” customer.
Nowadays, there are great technologies providing AI services that allow businesses to protect themselves from such cases and fight chargeback claims. For example, companies that are dedicated to evaluating all the business chargebacks, studying the history of previous claims to know how to proceed fast and effectively in order to win those cases. One of the reasons I recommend these companies is the efficient AI technology they provide and some of them even offer a policy that businesses enjoy by paying a fee only for the winning cases.
There are many ways you can protect your business from chargebacks. The best way is to avoid misunderstandings by being very clear to your customers about your services. However, in many cases, the customer violates the agreement conditions and the business gets severely affected because they need to refund or invest a lot of resources investigating those claims and collecting relevant evidence to support their case. Having said that, nowadays thanks to the advance of new technologies available, the immense costs and unnecessary work can be simplified by smart tools that can take care of those claims and will allow your business to focus on growing instead of fighting chargeback claims.
If you have any questions, feel free to ask me at david@lupalead.com.
Also, please feel free to share your thoughts or comments, do you agree or disagree with this point of view?
Thanks for reading!