Why Your Company Has So Many Chargebacks

May 17, 2023

Chargebacks won’t only cause you huge financial losses but can also negatively affect your company’s reputation with credit card processors. When trading products or service through the world wide web (eCommerce), always be sure that you look out for chargebacks, and take the appropriate steps to avoid them at all costs.

Operating your own business can be very profitable, but it can also mean taking steps to make sure your company has the fewest chargebacks possible – here we’ve put together a guide for what chargebacks are and have included suggestions about how best to reduce their incidence.

Why Are Chargebacks Bad?

Chargebacks are bad for any business. They’re one step beyond a refund and a complete reversal of profit. If they add up, a bank can even cancel your merchant account. Most banks have certain chargeback thresholds which merchants can’t exceed. They’re usually from 1% – 3%. This may seem low, but they put these limits in place because a chargeback uses the bank’s customer service resources. They are essentially the mediator in the entire dispute.

Beyond losing your merchant account, you hurt your brand. To a customer, a refund serves the same purpose. But often, they enact chargebacks because they’re unable to receive a refund. If you want return customers and a brand that’s based on quality customer service, it’s critical to understand the reasons why chargebacks occur at your company.

What is a Credit Card Chargeback?

We might refer to a chargeback as a disputed transaction. In other words, it’s any charge a consumer disputes on his or her credit card. When a client files a claim, the merchant must reverse the trade to refund the money.

Essentially, chargebacks are made to guard the shopper from unauthorized trades. A purchaser can only file a dispute instead of arguing with the vendor on the validity of a transaction.

What causes Chargebacks?

There are many reasons a shopper might initiate a chargeback, and understanding these can help you to fight them and even avoid chargebacks all together.

Here are some common causes:

01. Friendly Fraud

Chargeback fraud or favorable fraud occurs when a dishonest customers use chargebacks carelessly which in turn causes your business considerable losses. The consumer enjoys the service or product and then chooses to file a claim against you (a fraudulent claim) like they didn’t receive whatever they paid for.

Initiating chargebacks on legitimate transactions is a common habit among dodgy buyers – so, be cautious.

02.Technical mistakes

Human Error – there is the possibility of a mistake if the person accepting the payment is manually processing the credit card transactions. Avoid manual processing at all costs to avoid a chargeback claim.

Duplicate charge – Occasionally, because of mistakes in the system, a client’s credit card may be charged twice for one transaction. A duplicate fee is also plausible if the client hits on the PAY button more than once, which would then start the chargeback process.

03.Late Shipment of Products or Delayed Service delivery

Failure to ship purchased items or delayed service delivery can prompt a client to dispute a transaction and file a chargeback. This is why you have to ship the specific merchandise a purchaser buys within the stated time frame, maintain receipts, and make sure you track whatever item you send.

04.Unauthorized email or through-the-phone transactions

Clients may intentionally deny making a purchase via mail or phone. Therefore, if you are the merchant that accepts phone orders, always ask for as many details as possible – particularly the customer’s address and CVV of his or her charge card to deflect a chargeback dispute on the transaction.

05.Invalid accounts or credit card numbers

If your system is not configured to rebuff any invalid or expired cards then you could be responsible for numerous chargebacks. A chargeback is possible when the system fails to find a valid account number of the used credit card. Find a tech service merchant account holder to confirm your systems status and create the required updates.

The aforementioned are the most frequent causes of high chargeback levels. Most of them are matters that require only a small amount of attention. But if you start right away to cut down on the amount of chargebacks your business receives, you’re financial and payment processing success will carry you through to building a secure and reputable company.