Effectively Managing Chargebacks

Effectively Managing Chargebacks

In the world of small business one term can have merchants dizzying in a state of utter frustration and sometimes paralyzing fear; chargebacks.  Despite the numerous benefits offered to small business by incorporating credit card payments into their business model, the issue of chargebacks can present a myriad of problems to the merchant caught unawares.  Solving the problem of chargebacks is relatively straightforward and at its most basic sense requires that the merchant gets ahead of the problem.

Before we address how to solve the chargeback problem it is probably best to address what exactly a chargeback is.  To break chargebacks down to their most fundamental level, the chargeback can be viewed as a reversal of the original transaction.  Either the result of credit card theft or a consumer’s dispute regarding the charge, the original transaction is considered to be voided and the amount is charged back to the merchant.  As a result the merchant is responsible for footing the bill for the money that is charged back by the processor.  If the merchant wishes to have the money put back into their account, the merchant is required to prove that the transaction was legitimate, a daunting process that is in many cases similar to Sisyphus and his attempt to roll the boulder to the top of the hill.

The true issue with chargebacks is not their immediate effects but the effects that they can have on a small business’ finances.  If a merchant is counting on a set amount of money to be available to pay bills, debts, and salaries it is imperative that the money is not removed so as to avoid issues with bouncing checks and fees.

Having addressed chargebacks and what they mean in regards to their effects on small business it is imperative that a solution is presented to limit those negative effects.  As stated earlier the best way to solve the problem is to stay in front of it.

The simplest solution in regards to chargebacks is to act as fast as possible after a transaction.  A staggering majority of small businesses do not process their credit card transactions immediately.  The delay in payment processing will usually result in a chargeback as the timeframe within which a credit card  payment can be processed is limited and failure to process can result in a situation of credit not issued.  In processing payments immediately the merchant is able to avoid this risk.

While it may not seem like an obvious way to solve chargebacks addressing the speed of your deliveries is critical.  The consumers of todays society desire that there are delivered in the shortest time possible.  When a consumer is unhappy with the speed at which a package is being delivered and decides that the package is not being delivered, the merchant can be hit with a goods not delivered chargeback.  Ensuring that the product is on route before depositing the payment can greatly reduce the risk of a goods not delivered chargeback.

Although this next tip may seem straightforward there are a majority of merchants who fail to heed this cardinal rule of credit card processing.  If the authorization for the card was denied you should never process that transaction.  The chance of a chargeback on an unauthorized transaction is almost 100%.

Despite its archaic existence ensuring that a manual card imprint machine is available is another simple yet extremely effective method at limiting potential chargebacks.  When, not if, your terminal malfunctions or the magnetic-swipe ceases to work properly, having an imprint machine allows you to record not only the expiration date but the embossed account number as well.  This will be of the utmost import in regards to avoiding no imprint chargebacks.

With these basic methods of preparation and tips, chargebacks should be a relatively easy walk in the park.  While chargebacks are rare, typically only 0.01% of all credit card charges are disputed as found by Heartland Payment Systems, there is always a possibility of their occurrence.  In using the methods outlined here you can better prepare your small business to avoid and strive through possible chargebacks of the future.

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SMB Reviews
SMB Reviews 473 posts

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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