An Introduction to Chargebacks & Tips to Deal With Them

Wednesday, July 20th, 2022

Chargebacks are when a customer files a dispute with their bank or credit card company, claiming that a merchant has broken some law or rules. 

This claim can be due to a merchant’s failure to meet a contract, like by not delivering the product on time, or it could be due to fraud, like using stolen credit card information. In either case, the merchant may lose the sale and incur an expense rather than make the sale.

If you sell physical goods and services, you’ll want to know about customer chargebacks (also called refund requests), so you can address them appropriately.

You might have heard about chargebacks before but still aren’t sure what they are or how they happen. 

Here’s how they work:

How Do Chargebacks Work?

When someone buys something from you, they often want to know that you will deliver it. The goods may be expensive, but if the customer is contented and the transaction is smooth, they’ll be happy to pay and move on.

However, sometimes things don’t go according to plan. Maybe the item isn’t what they expected, or they received a defective product. 

In either of these cases, customers may ask for a refund or chargeback — simply put, a reversal of the transaction made by your customer so that they can get their money back.

A chargeback may also occur for several other reasons like:

• The customer charged for services or products that were not delivered
• The customer is charged for an item that they did not order (e.g., if someone else uses the customer’s credit card

Chargebacks are something that many sellers are not aware of until it happens to them. And they may not realize, until after their money has been refunded to disgruntled customers, that there is a way for them to fight back against these charges.

How can I Respond to Chargebacks in my Business?

Responding to a chargeback is a two-part process: 

• Identifying if there was fraud or not, and 
• Determining what action to take 

Identifying the problem

There are two main types of chargebacks: 

• Fraud 
• non-fraud (also referred to as “merchant access” or “retail”). 

Fraud charges stem from stolen credit cards or other fraudulent activity on the part of your customers. In contrast, non-fraud charges are due to errors made by consumers or other factors such as timing problems or billing issues (such as incorrect shipping addresses).

Taking action

File a report with your bank immediately after receiving notice of a fraud chargeback request. You’ll want to give them details about the incident so they can investigate and take action against the person responsible.

If you receive a non-fraud chargeback request, ask why they think it should be valid before filing an appeal. If the customer doesn’t explain right away, investigate the matter before processing the refund.

Last Words

If you run a business, such chargebacks can cause serious financial damage. Knowing how to respond to these disputes is crucial to running a smooth business. It’s the best way to avoid getting stuck in the crossfire.