Avoiding Chargebacks at Your Business

Companies have to walk a fine line between offering good customer service and protecting their bottomline by avoiding chargebacks. Chargebacks are frustrating for a number of reasons. For one, the company may have included the sale into the monthly revenue only to find out later that a chargeback has occurred. Secondly, credit card companies charge money for chargebacks.

Good companies evaluate why they are having chargebacks and learn to improve their customer service and their store’s future performance. From the knowledge, they learn to retain sales and increase revenue.

What is a Chargeback?

Chargebacks occur when a customer asks the credit card company for a refund. The credit card company will refund the money to the customer. Later, the credit card company will withdraw the amount of the transaction from the merchant’s bank account to cover the amount that was reissued to the customer. Not only will the merchant have to pay for fees from the bank, but they may also have to pay a third party for pursuing the merchant for the merchant.

Types of Chargebacks

Chargebacks may occur for two reasons:

1) Customer dissatisfaction or
2) Fraudulent charges or fraud prevention.

If the customer is dissatisfied with the product or service, they may call their credit card company and demand a refund. Alternatively, if the company fraudulently charges the customer’s credit card without their permission, this may result in a chargeback as well.

Self-Inflicted Chargebacks

A self-inflicted chargeback may occur when a company agrees to deliver a product by a certain day, but perhaps the product did not deliver on the specified date. The customer may then call the credit card company and request a refund because the product did not arrive. The customer may later receive the product after the money was refunded.

In this type of scenario, it becomes the company’s priority to set appropriate expectations with the customer about the date of arrival. If the company properly informs the customer, they will avoid chargebacks that occur when the customer contacts the credit card company and requests their money back, because they did not receive the product.

How to Avoid Operational Chargebacks

For the most part, it is the company’s responsibility to reduce the possibility of a chargeback. Chargebacks normally occur when a customer does not understand the product description or did not understand the exchange policy. The company considers this type of chargeback controllable and avoidable. They often refer to this type of chargeback as operational. Companies must set realistic expectations about the product and the policies to avoid costly chargebacks.

Companies must use language to clearly explain the product or service to avoid confusion. The product descriptions should be clear and concise with specific information such as dimensions, measurements and weights of the product. The material of the product should also be described. Photographs should be used online to clearly give an accurate representation of the product. The product information should also be listed in the shopping cart.

Companies should also describe the shipping process in detail, along with any handling charges. The shipping instructions should include terminology that gives a range of days to expect the shipment. For instance, telling the customer that the product “usually ships in four business days” is better than “the product will arrive at your home or office in four business days.” Why? There may be an unavoidable delay in shipment that has nothing to do with your company.

The estimated delivery dates should be clearly marked in the confirmation email to the customer. Some companies may even add an “About Shipping” link to the site to elaborate on the shipping process to avoid misunderstandings and chargebacks.

How to Build Brand Loyalty and Avoid Chargebacks

Companies that handle customer complaints in an efficient and positive manner will keep their customers and build a loyal customer base. This is one of the key ingredients to building brand loyalty and a good brand image. Companies should build brand loyalty by paying refunds promptly and in a courteous fashion.

In confirmation emails, the store policy should be listed. Some companies may also require the customer to accept the store policy upon check out to minimize the number of chargebacks due to misunderstandings. Include a link with detailed instructions about how a customer can return or exchange a product. Always acknowledge your customer service emails and set customer expectations by telling them in an auto-responder email when they should expect a response. Then, tell them what to expect from the response.

Companies May Challenge Chargebacks

Companies must be careful about challenging chargebacks with customers as this could ruin their relationship with their customer and their customer’s network or friends. Chargebacks may be reversed if the merchant can prove that they were not negligent in the process. In most instances, if the promise made by the company was breached, then it is best to maintain customer loyalty and accept the chargeback. Companies may notice habitual offenders that are abusing the system and pursue reversal of those chargebacks.


If you follow these steps, you will be able to walk the fine balance between maintaining customer loyalty and protecting your bottom-line. While it is not an easy task, it is manageable if you take the effort to educate your customers about your policy. Your reputation for your return policy will become a part of your brand image.

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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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