Chapter 3 How to Prevent, Dispute and Reconcile Chargebacks for Online Businesses
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The majority of sale transactions happen smoothly, working much like this: the sale is authorized by the customer’s card issuer, you ship the merchandise to them and get paid.
Once in awhile, though, the customer may file a dispute, asking their credit card company to reverse the transaction.
Why does this occur and what can you do to either prevent the issue or turn a frustrated customer into a repeat buyer?
Below are the details behind what is most often a misunderstanding between a buyer and a brand, and how to turn a mistake into a learning opportunity.
Why Do Payment Disputes Occur?
A buyer may file a dispute for one of three reasons:
- Item not received: The buyer claims they ordered and paid for an item but didn’t receive it.
- Item significantly not as described: In this type of claim, the buyer says the item they received is significantly different than they expected, based on the seller’s description. For example, maybe the buyer ordered a red sweater, but received a blue one instead.
- Unauthorized transactions: A buyer claims that a purchase was made without his or her knowledge or consent. Or the buyer was charged twice for the same item.
When these things happen, buyers may take action by opening a dispute and asking their credit card issuer to reverse the charge.
This process is referred to by credit card companies as a chargeback. The credit card company will contact your merchant bank, who’ll ask you to clarify the dispute.
Tips to Prevent Disputes and Chargebacks
There are several things you can do to help avoid disputes and chargebacks from happening in the first place.
Below are the industry best practices to avoid and handle disputes.
- Provide contact information: Buyers may not resort to a dispute or chargeback if they can talk to you directly about an issue. Provide an email address or phone number, or even call buyers in advance if you're selling higher priced items.
- Be responsive: No one likes to wait, so do your best to respond quickly and professionally to all reasonable buyer inquiries.
- Suggest dispute resolution: If a customer tells you that they intend to file a chargeback with their credit card company, try to resolve the issue first. Some processors like PayPal offer a resolution center where buyers can open a dispute, giving you a forum to work with the buyer so the issue doesn’t escalate.
- Provide a clear return policy: Make sure your return and refund policies are easy to find and understand. If customers claim they couldn’t locate the return policy, it can be to your disadvantage, not theirs.
Beyond these industry best practices, there are additional methods for offering customers a positive brand experience when something goes wrong with an order.
Try the easy steps below to provide excellent customer service in the face of disputes or chargebacks.
Preventing “Item Not Received” Chargeback Claims
Here’s how to avoid or minimize losses when your customer doesn’t receive an item.
- Give buyers realistic delivery dates: Realistic dates can help prevent customers from prematurely filing disputes.
- Ship with online tracking: Use a shipping service that provides online tracking to help confirm that an item was delivered. Standard shipping receipts only show that an item was shipped. If the total sale is over $200, require a signature to confirm that your customer received an order. The nominal expense is well worth it.
- Order shipping insurance: Too many things can go wrong in transit. That's why it's important to purchase shipping insurance for items that are fragile or expensive. You’ll be covered if an item is lost or damaged, plus it includes tracking and delivery information so a customer can see that the order is en route. Insurance will also alert you when a package is delivered. In case of a shipping problem, just file an insurance claim with the shipping company.
- Be aware of insurance exceptions: Liability for loss or damage may be limited depending on the type of package, the declared value and/or the shipping company. Talk to your shipper to ensure proper coverage.
- Delay shipping high-risk orders: Delay the shipment of new orders that are expensive and in demand for 24 to 48 hours, especially when shipping internationally. Use caution when shipping overnight. Scammers will often ask for overnight shipping so they can resell expensive merchandise as quickly as possible.
- Let customers know when something is out of stock: If an item is out of stock, remove the listing or update it to reflect the out-of-stock status. Provide an estimated in-stock date or clearly indicate that customers who choose an out-of-stock product are placing an advance order. Likewise, if you learn of an issue that might affect shipping times (such as bad weather), let customers know as quickly as possible. That way, they can find answers to questions without even initiating a dispute or calling you.
Prevent “Significantly Not As Described” Claims
Here are a few things you can do to help make sure that items meet buyers’ expectations.
- Provide pictures and detailed descriptions: Take photos of products from various angles. Add accurate, detailed descriptions so customers know exactly what they're buying.
- Give adequate disclosures: If you’re selling used items, clearly disclose any functional defects or cosmetic damage.
- Answer any questions promptly and clearly: If a buyer does contact you with an issue, being helpful and keeping a positive tone may prevent a small problem from growing into a larger one.
Prevent Unauthorized Transaction Claims
Buyers may open a dispute or request a chargeback when they believe that their credit or debit card was used without their permission. Sometimes this may be a simple mistake or misunderstanding, e.g. the buyer forgot they made the purchase or a family member authorized to use the account made the purchase.
On rare occasions, this may be an indication of fraud. If so, be sure to follow fraud detection best practices to help keep both your customer and your store’s data safe.
In most cases, the easiest way to settle a dispute is to work with your customer to figure out what happened. Begin the conversation with an open mind, listen to what they have to say and stay focused on a solution. It’s a chance for you to provide great customer service, prevent a possible escalation and turn them into a repeat customer.