How To Avoid Credit Chargebacks

Chargebacks are a huge headache, especially for companies that do business on the web. Unfortunately, the opportunity for fraud is far greater on the web where a customer can’t march in the door and pound on the counter if they feel ripped off. As a result, the internet consumer is favored by credit card merchant processors when a dispute arises. And for a merchant, a high chargeback history can result in the termination of your credit card merchant account.

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Fortunately, not all merchant processors are created equal so it pays to shop around. In our own business, which involved internet sales, we found that switching merchant processors virtually eliminated the chargebacks. The old provider immediately refunded the customer and almost never accepted our proof of order (which was typically an email from the customer). The new provider sent us a dispute notice, we sent them the copy of the email order, and the dispute was resolved. So while card companies have their own rules about disputes, the merchant provider does have some discretion in handling them.

A good source of information on all of the issues in choosing an merchant provider is available at http://www.merchantseek.com. We never used their service but they offer a good overview of the issues. Be sure to ask specifically about how a prospective merchant processor handles chargebacks.

Aside from changing providers, here are some other things you can do to improve your discount rate and reduce your chargebacks:

Many chargebacks occur because the customer doesn’t recognize the charge on their credit card statement. Since you can control what prints on their receipt and therefore their statement, be sure it says something that clearly identifies the nature of the charge. Your phone number or web site are good choices, particularly if they help identify who you are.

Ask yourself why you have so many charge backs: quality control, slow delivery, inaccurate ads, or even just the nature of your products may produce a high return rate. And if returns are difficult or customer service is a 30 minute wait on hold….

Keep up with the enhanced fraud protection services that are available from the major credit card issuers.

Gather the necessary information from your customers so that you can process the transaction with Address Verification (AVS). This will help prevent fraudulent transactions.

Use the V-code on the back of Visa and Mastercard to ensure your customer is actually in possession of the card.

Verify that your customer has given you a good telephone number, address, and email address. Crooks usually fake these.

Require customers to read your full disclosure of terms before they place their order (e.g. refund and return policy, shipping and handling charges, taxes, back-orders, etc.).

Be sure to follow the credit card companies rules for handling backordered items.

Create a paper trail for all orders. That way you have something to send your merchant processor when a dispute occurs.

Respond to all disputes within the timeframe required by the credit card company (usually 10 days).

Never refund a different card than was used to place the order.

Multiple charges for the same amount (which occur when a customer orders the same thing more than once) often appear fraudulent. Be sure you have a separate invoice number for each order.

If you’re shipping goods, be sure to have proof of shipping and better yet delivery for all orders. being able to show the card company a receipt from, say, FedEx that it was delivered at 10:03 and it was accepted and signed for Fred Mertz is pretty convincing proof.

Visa USA offers information on chargeback management. Their Chargeback Management Guide covers the majority of chargeback types a retail or service establishment might encounter and demonstrates that merchants have considerable “preventive” control. To order the Chargeback Management Guide, call Visa at 1-800-VISA-311 and ask for item number: VBS06-01-00

Some final thoughts on picking a merchant processor:

1) Shop around and be sure you understand all of the relevant charges (monthly fees, per transaction fees, equipment fees, statement fees, on-line access fees, chargeback fees, etc.).

2) Notwithstanding #1 . . . price isn’t everything. The rock-bottom provider may not offer the best customer service.

3) Insist on references and check them thoroughly. Changing merchant providers is a big step and you don’t want to do it more than once.

4) If most of your business in internet-based, choose a provider with lots of experience in that area. You don’t want to have to pay for their training if they’re just starting internet processing.

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