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How To Prevent Chargebacks and Fight Unfair Disputes

Every subscription merchant needs to know how to prevent chargebacks and respond to their initiation. Here’s how to protect your profits and reputation.

Updated:  

January 25, 2023

Ecommerce chargebacks on a receipt.

You’ve taken the order, customized the box and shipped it out to the buyer — only to find the credit card company canceled the customer’s payment. It’s a nightmare situation for any seller.

Chargebacks are a problem for all ecommerce sellers, but subscription merchants most of all. They come with a variety of costs, including fees, labor costs, customer churn and lost monthly recurring revenue. Get too many of them and you could be labeled a high-risk account — which hurts your standing with banks and payment processors.

Practices that reduce the likelihood of chargebacks being filed are therefore good for you and your customers. You also need to be trained in dispute resolution so you can respond quickly to any claims brought against your company. Any ecommerce business that doesn’t have these practices in place is risking its future.

Here’s everything you need to know to reduce the number of chargebacks your company receives and resolve them when they do arise.

What Ecommerce Merchants Should Know About Chargebacks

There are multiple reasons a customer may try to initiate a chargeback. Ecommerce sellers need to understand them all so they know how to properly address them.

There are three categories a chargeback can fall under. The first is criminal fraud, or charges made to stolen credit cards. The second is merchant error, such as duplicate charges or failure to properly cancel a subscription. The third is friendly fraud, when customers dispute a charge for an item or service they received and kept.

Credit card companies and banks code chargebacks so merchants know what the issue is. You may see the following types of disputes:

  • Unauthorized charges, where the cardholder believes someone else used their credit card to make a purchase.
  • Unrecognized charges, where the cardholder doesn’t know what the charge is but has not blamed it on a third party.
  • Duplicate charges, where one item was charged to their card twice.
  • Subscription cancellations, where a customer requested to end a subscription, but it is still active.
  • Product not received, where the customer did not get the package you sent.
  • Product unacceptable, where the product did come but was damaged, defective or otherwise not as described.
  • Credit not processed, where a customer made a return but did not receive their refund.

Because chargebacks are caused by such a wide variety of factors, you need comprehensive prevention methods.

Five Ways To Prevent Chargebacks

Chargeback prevention starts the minute a prospective customer enters your website and doesn’t end until their last package has been successfully delivered. Follow these five customer-friendly steps to reduce the likelihood of receiving a dispute:

1. Verify Every Transaction

Ecommerce sellers have multiple tools at their disposal to make sure a transaction is valid. Invest in a payment system that has features like:

  • Address Verification System (AVS): Make sure the billing address given matches the address of the cardholder.
  • Card Verification Value (CVV): Ask customers to enter the three- or four-digit code printed on their card to ensure the number wasn’t just scraped from a leaked database.
  • Email Verification: Collect customers’ emails to analyze how often they’re used and how many chargebacks are associated with each to spot potential fraud.
  • Purchase Frequency Limits: Make sure accounts and/or card numbers cannot make multiple purchases in a row.

Many ecommerce platforms and apps (including ours) have some or all of these fraud prevention systems built in, while platforms such as Salesforce Commerce Cloud and BigCommerce have apps well worth the investment that add these functionalities.

2. Send Prompt Transaction and Shipping Updates

5% of consumers canceled subscriptions due to erratic deliveries.

Buyers may initiate a chargeback if they think their package won’t make it to them. Avoid these instances by emailing and/or texting customers when an order is made and again when the package ships. Most smaller sellers can’t fulfill orders in the two-day window Amazon has popularized, but shoppers are more understanding if they know when their package will arrive. Updates are essential for backordered items or shipments that hit delays.

On your end, invest in shipping insurance or shipping confirmation services to reduce your potential liability for a mistake. Follow up proactively with customers once their package is marked as ‘delivered’ to make sure they got what they expected and are enjoying their purchase.

3. Make Returns Easy

Promptly solving your customers’ complaints will improve their opinion of you (even after a bad experience) and prevent them from escalating a dispute by contacting their bank. Consumers don’t want a hassle when they’re already dealing with a purchase that didn’t meet their expectations. Make it easier to get a solution through your company than through the bank with:

  • An FAQ page that covers your subscription, shipping and return policies
  • A contact page that shares multiple ways to reach out — preferably including email and phone
  • Internal workflows that guarantee a quick response to all customer concerns

Handling these communications should therefore be a high priority for your customer service team.

4. Use a Descriptive Merchant Name and Purchase Description

An unfamiliar charge can spark panic in a customer and lead to them calling their card issuer to cancel the purchase. Make sure your customers see a charge from YourCompany.com, not a shell LLC they’ve never heard of.

Ecommerce merchants should be able to change the name that shows up, also known as the statement descriptor, within the settings of their payments platform. Make the best of the character limit to let the customer know who they bought from and what they bought.

If your payment processor allows you to share information such as purchase dates, item names and item descriptions with card issuers and cardholders, do so. This information can help jog a customer’s memory and end a dispute before it starts.

5. Have Clear Subscription Policies

No customer should ever be surprised to see your company charging them for the second month in a row. Make sure your customer knows how much they will be billed and how often that payment will recur. This information should be clear before you collect credit card information and repeated in your welcome email and receipt.

Make it easy to cancel subscriptions, as well. It should be as simple as clicking a button — no jumping through hoops with a chatbot or having to call customer service during business hours. If you respect your customers’ right to have control of their purchases, they’re less likely to override you by contacting the bank.

80% of subscribers want clear information about charges.

What To Do When You’re Hit With a Chargeback

Prevention won’t help you avoid chargebacks altogether. While you’ll hopefully receive fewer disputes once you put the previous measures in place, you still need a solid process to address customer complaints quickly.

Contact Your Customers Directly

Mediating a dispute through a cardholder often leads to miscommunications or missed communications. It’s often easier and quicker to resolve a complaint by reaching out to the cardholder directly. You should have their information on file from when they made the purchase — so take the initiative to send a personalized email asking how you can help.

Everyone who helps customers should be kind, take the time to listen fully and do what they can to address the complaint. A consumer who believes your company will fix the problem can be convinced to drop the official payment dispute. This removes the record from your account and saves you money in fees.

Even if the customer moves forward with the chargeback after your discussion, you can submit documentation of your conversation to the card issuer to fight back against an unfair claim.

Address Each Chargeback Within the Deadline

Every credit card issuer has a deadline by which you must respond to a chargeback or forfeit your right to challenge it. Merchants may not want to seem troublesome by challenging every chargeback but failing to do so may be seen as an admission of guilt. Plus, when you win, you save money for your company. If you’re working with a subscription sales tool that doesn’t include automated alerts to help you win representment cases, make sure you have someone who’s trained to handle them.

Plan your response to each chargeback to be completed before the deadline with more information than requested. You can provide additional documentation like email exchanges and shipping information to show that your customer received the item they expected.

Preempt Chargebacks With Tools Like Visa Verifi

You can keep your company’s chargeback-to-purchase ratio low by addressing disputes before they’re recorded on your account. Visa Verifi sends you an alert during the pre-dispute phase — once a customer has initiated a complaint, but before it goes into the card issuer’s chargeback flow. You have 72 hours to issue a refund, thus removing the need for an official chargeback filing.

It’s true this solution may put you out of the price of your product and shipping, but it will help you maintain goodwill with your customers. And since retention is paramount to subscription sellers, maintaining customer relationships is always worth it.

Getting ahead of the chargeback report also allows you to avoid fees and protect the standing of your merchant identification number (MID). It’s an important tool to keep high-risk merchants and ecommerce sellers in good standing (and it’s now easy to add Visa Verifi to the sticky.io platform).

You Can’t Buy a Good Reputation

Customers and banks alike keep track of who they like to deal with. Ecommerce merchants who misrepresent their products, have lax shipping practices and/or make returns and cancellations difficult will see their reputation suffer. This means lost customers — and less MRR. It can also lead to banks labeling you as a high-risk account and charging you higher fees or refusing to process transactions for your MID.

On the other hand, merchants that put their customers first are likely to leave a good impression. A caring response can keep buyers loyal even when you make mistakes. You can, therefore, invest in a good reputation, even if you can’t buy one outright.

Take the time today to double-check your chargeback mitigation and resolution measures to see whether you’re providing the best experience possible. A pre-planned process for addressing customer complaints will keep you in the good graces of banks, card issuers and customers alike.

sticky.io can help you fight fraud and reduce chargeback claims against your ecommerce business. Learn more about what we can do for you.