Money Chargebacks & Your Business - Episode 11 – Business Bites

Money Chargebacks & Your Business

Episode 11 on the Business Bites Podcast

The Gist Of This Episode: Taking money from consumers brings with it a host of legal issues. Let’s focus on when consumers file a chargeback – what is it, how to handle it, and how to avoid it! 

What you will learn:

  • What a chargeback is
  • Reasons for chargebacks
  • What to do if you receive a chargeback
  • Preventative measures you can take to avoid them
  • and more!

Expand To Read Episode Transcripts

Welcome to this episode of the Business Bites. My name is Rachel Brenke, and I am your lawyer and master business consultant here to help you today a little bit with a not so fun topic, but yet let’s just consider it completely fun because it does have to do with money in yen or rather, keeping money in your pocket.

I want to talk about preventing and/or fixing chargebacks that happen in your business. We have credit cards and debit cards. I probably don’t know anybody in my life that does not have at least one of these, and these supposedly make our lives easier, right? In theory, it’s supposed to be super easy. In fact, we probably have it stored into our phones, on the computer, LastPass, whatever it is that you’re using.

Credit and debit cards are supposed to make it completely easier for us. They have convenient perks, but they come unfortunately as business owners with a bunch of new things that we have to consider not only as a business owner, but also if we are a consumer partaking in business with other businesses.

I want to talk to you guys about a chargeback. If you haven’t heard what a chargeback is, you probably have never dealt with a customer or a client doing it to you, and you may have not been victim of identity theft. Essentially, a chargeback is when a financial institution that is transferring the funds from the consumer or your client, it’s either by a debit or a credit card, and they forcibly return the funds from the merchant which is you, the business owner, back to the consumer.

This ability to reverse a transfer is what’s created at the Truth in Lending Act for credit cards and blah, blah, blah, blah, blah. It happens for a couple of different reasons, and I’ve already listed them, but for specifically in cases of identity theft, or when an item was never received, or if the item, product, service is substantially different than what is advertised. All of these are consumer protection and which we’re glad that we have that, right?

The unfortunate thing is that it can be a double-edged sword. If you get a crazy client, you may … or customer, you may end up having to deal with one of these chargebacks. This protection can incentivize merchants to provide the customers with quality products, services, and good customer service.

The unfortunate part is a lot of times, I see chargebacks occur in a couple of different ways. Really popular one, which is not necessarily detrimental to either party, but sometimes a customer forgets or doesn’t recognize the name on the card, on the statement, and they don’t know who it’s from. They go ahead and initiate a chargeback thinking that it was, situation number one, the case of identity theft, or they just have no idea of what’s going on, and so that’s good. That’s benign. You can end up talking to them later. You can show your demonstration that they did know who it was, and hopefully, you can get that money back from the consumer.

Another situation that I often see this in is when a customer is unhappy with their product or service, and it may not even be that they’re upset with the product, but it may be the customer service that went along with it. Then, another situation often times I see people who are just really bad customers, really bad people, and they never intended to truly pay for the product or service to begin with, and they initiated chargeback on one of these claims of it being substantially different as advertised, they never got it, or they don’t recognize. Obviously, that would be fraud because all of that is not correct, but there are people out there that this happens with.

The process of how this happens is a consumer can begin the chargeback process. They call their financial institution, they file a complaint regarding this specific charge or transfer, and it’s often in one of the situations that I just outlined, but if the financial institution deems the complaint valid and reverses the charges, the unfortunate part is not only do us as the merchant … We lose the money for the product or service, but we also end up getting an additional fee which can be between $15 to $100. It’s a chargeback fee.

I know for sure that when PayPal has chargebacks, they definitely charge this fee for sure, and it really sucks. In addition to losing the original money that was paid and the chargeback fee, you can also end up losing the products because you’re probably never going to get it back at this point and the shipping and handling cost that went out as well.

What am I trying to tell all of you guys with this? I want to counsel you a little bit on what to do when you are on the merchant end of a chargeback. If the financial institution has reason to believe that the chargeback is valid, they will then issue your client a temporary credit which is going to be debited from you, the merchant’s account.

You’re going to get a notification of the chargeback. This could be a phone call, email, online chargeback system. I know a lot of times, the ones that I’ve seen had been by email because they want to have written documentation. At this point, this is when you need to submit documentation to challenge the chargeback. If it’s successful, you can get the money returned to you.

The exact process of how to submit is going to be varied from financial institution to financial institution, but this information by the financial institution of how you need to submit and what you should submit is going to be readily available. Make sure you follow all … This is super important. Super listen in especially if you use PayPal, or Swipe, or one of those other systems online. Make sure you follow all of the financial institution’s rules in responding and make sure that you follow all of like any seller protection policies as well. Otherwise, your challenge may be rejected and it’s very hard to open it back up.

Some of the things that you need to consider having to submit would be if you were offering a service, maybe that’s services agreement. If it’s an online purchase, whatever the purchase terms were as well as documentation of IP tracking addresses, signatures, the card submission, the method in which it was done, when it was done, the time it was done. As specific as you can be as possible, then that is going to help your case when you make the argument to the financial institution that you should not have been subjected to the chargeback.

That is pretty vague it seems like, but really, I’m telling you guys. Go to the financial institution. Find out what exactly you need to submit and how to submit it, and they will provide you a checklist of what you need to do.

Before all this, we want to try to avoid chargebacks. In the 3 situations that I gave you at the very beginning, the third one obviously, people that are fraudulent. It’s very hard to identify them upfront, and it’s going to be hard for us to avoid it, but often times, we can try to also avoid the situation when people feel like it was unsatisfactory, and I’m going to walk through a little checklist for you guys here because the bulk of them from my experience, the chargebacks often result in mistakes that can be avoided. Therefore, there are many ways that you can help protect your business from unnecessary chargebacks.

Many of the major financial institutions have provided merchants with suggestions on how to avoid, and here are the suggestions that they’ve given and I agree with. First is the proper swipe process. Do not repeat a transaction that has received an authorization request declined notice. If you run a transaction and received the call message, then you need to call the authorization center. If you do not have a magnetic strip reader or the chip reader as now, it totally has like the world in upheaval. “Do you swipe? Do you chip? We don’t know.”

If you do not have those readers in addition to keying in the credit card number, take an imprint of the card if you’re able. I know this is going a little bit by the wayside, and if you’re doing things online, obviously, you’re not going to be able to take an imprint of the card. Another part of the proper swipe process is only swipe or make the imprint of the card once. Multiple swipes can lead to possible duplicate deposits, and thus chargebacks.

Yeah. It made it sound like, “Oh, it’s okay if it was a duplicate transaction and I got a chargeback because that wasn’t my fault.” The unfortunate part is when chargebacks occur, it can look negative on you as a merchant, and you can end up being rejected for being able to use online processing systems or any processing systems, any authorization type of companies, and you could just end up getting a ping against yourself, so you want to try to not have duplicate charges that one may result in a chargeback. You want to try to make sure to refund those if you see duplicates as well.

I know my online systems trigger if there’s a duplicate so that I can go in, and go ahead, and double check, and refund it before someone tries to do a chargeback because I don’t want the health of my business on that side to look negative simply by a mistake because electronic stuff happens and duplicates can occur.

Also, make sure that each transaction is entered and deposited once. I already said that. Void all incorrect receipts and restarted transactions in case of a mistake rather than processing twice, and get a signature. Oh my goodness, get a signature please. The signature can also include your … if you have or taking debit cards with the proper pins.

Proper deposit process. Make sure your deposit sales receipts with your bank ASAP. Otherwise, a chargeback can result for late presentment of the sales receipts and deposit receipts with you require ASAP to avoid chargebacks for credit not issued.

Okay, so those are all just common sense things, I mean, because we all use credit cards and debit cards. We know how that works, but another thing that we can do that’s little less tangible, but just provide good customer service.

Please disclose all the return, refund, and cancellation policies at the times of the transaction not just to communicate with your consumer and to build their buyer confidence, but also so that if you ever need to dispute a chargeback, they can see that the consumer was educated on these policies.

If a consumer has a recurring transaction with you and request it to be cancelled, respond and process this cancellation ASAP. If the cancellation is going to take a couple days, make sure you inform the customer of the fact that it may take a couple days for a transaction to be stopped. Keep your clients updated on the status of their order and provide refunds if necessary which I already mentioned, but make sure you only refund back to the original card number and do so individually for each transaction.

Some good shipping tips if you have some goods shipped only after the depositing transaction to avoid a chargeback for not receiving the item. If there is a delay, please communicate and notify with the customer in writing and include any new dates. If the delivery is going to be delayed or you cannot provide the item, let them know in writing. Writing, writing, writing, writing. We’re going to be covering our butts here and offer options such as a substitution of another item or cancellation.

For online transactions specifically, make sure that transactions are performing. An automated address verification require the card verification value. That’s the 3-digit on the back of the card as well. I just want you guys to keep this mind that chargebacks do occur. Even with the high volume that my business is going through, they are very few and far between.

The number one issue that I’ve had of chargebacks which is unfortunate, but customers just don’t remember that they purchased something or an employee did it and the business owner doesn’t recognize it, and so they automatically do a chargeback because they jump and assume that it’s identity theft, and this is where I’m cautioning you guys as business owners.

If you are on the consumer end and you see a charge, whether it’s a duplicate or you think it’s unauthorized, and you have a … Reach out to that business first so that they can explain to you what the purchase was so they can provide the refund because we don’t want to do to other businesses what we don’t want a customer to do to us. We want them to call us so we can fix this so that we don’t have any history of negative chargebacks on our account because we want to try to keep everything as happy and healthy for everyone as possible.

Again, we’re going to run into people that do have the fraud, especially if you’re in the services and digital product industry. Especially online, you’re going to find a lot of people that think that they can get around the policies and such by just saying they never received something or that it was unauthorized because how can you prove that it wasn’t them or not?

People come up with all sorts of fraudulent excuses, and it’s unfortunate, but it’s just a cost to doing business unfortunately, but don’t let me scare you. There’s really few and far between. Just be vigilant to know that these are the situations that you can run into. I’ve given you guys a checklist. You can head over to the transcript and look at it. It will be all outlined for you, all the tips that you need to know of what you need to keep, how you need to do it, and some good prevention ones as well.

I surely hope that you guys never face this in your business. I know I always feel slightly insulted when someone does a chargeback, especially if they … when I know I haven’t done anything wrong, I’ve delivered properly, and I’ve done the best that I can. Go forth, and try to protect your business. Prevent these chargebacks as much as possible and be respectful of other business owners when you are the consumer.

About the author

Rachel Brenke is a lawyer, author and business consultant. She is currently helping professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.

Hi, I’m Rachel Brenke

Rachel Brenke

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