Crealanta Magazine

What can you do to prevent and manage the occurrence of Chargebacks and Payment Disputes

Jan 17, 2023

When you run an online business when you sell something, however, you later get a dispute notice. These usually happen weeks - even months after the purchase. There's now administrative tasks to do and the possibility of losing money from the sale, and you'll have less time for managing your company.

While this is usually not a frequent occurrence, if it happens on a regular basis major partners like credit card companies might begin to fine you, or impose tighter regulations, or even close ties to your business.

It's good to know having a plan in place to prevent disputes and manage them when they do occur keeps your shop free of headaches. Even better news? You can learn everything you need to know from this article.

Table of Contents

What is a dispute? What are chargesbacks?

A payment dispute happens when a person who uses the credit card company they use to contest a charge that was incurred on their account. The credit card company takes these concerns seriously, and in the event that they find that the motive of the dispute is legitimate and they'll issue a pro forma credit to the account of the customer while the dispute is resolved. This is also known as a chargeback.

How come disputes and chargebacks take place?

There are two main reasons for disputes over payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll go into more detail about both a bit later.

At first glance one might think that you have much more control over this one than the second. However, the truth is that there is some degree of control on both of them, as you're about to discover.

The reason why merchants must address disagreements

Payment disputes aren't something one can simply leave them unattended and hope that they will go away. They will not. Ignoring them will just result in problems that escalate and can impact the long-term viability of your business.

Card networks track the rate of disputes (the ratio of confirmed transactions in comparison to those that are disputed) and could charge more charges or impose penalties if yours is unfavorable.

What to do when you get a chargeback

This is what you should do when you receive a payment dispute notice:

React immediately

If your card company begins with an inquiry, it is imperative to respond promptly. If you use Payments and you're a member of the Payments network, you'll be informed of any potential disputes by mail and also an email notification within the dashboard.

If you don't respond within the shortest amount of time leads them to believe that you're not going to contest the dispute. Each card network has their individual timeframes to determine how long an inquiry into a dispute remains open. You'll need take care to gather the right evidence when submitting said evidence before the timeframe expires.

If you're using Payments it is easy to sign into your store's dashboard to respond to the complaint.

dispute response in Payments

Provide documentation

Then, you must provide clear and compelling evidence about the particular transaction. This should include the number of your credit card (or the truncated version), the date and amount of the transaction as well as the order information or evidence of delivery you have on file.

The information they gather helps them rule out any possibility of fraud as well as ensure that everyone is on an understanding of the circumstances.

Submit requested evidence

In addition to the basic documents, the network might ask for more information regarding the transaction. If they don't, you should send your documentation regardless. The time spent gathering all the required documentation will be well-spent but ensure that you've gathered and submitted everything before the deadline.

The type of documentation you send will depend upon the type of issue you're dealing with. There are at the very least seven types of payment disputes:

  1. The refund wasn't processed
  2. Multiple charges
  3. Fraudulent charges
  4. Inaccurate charges
  5. Product not received
  6. Product unacceptable
  7. Subscription canceled

What happens if your company doesn't take action to charges?

Chargebacks might seem intimidating or difficult to deal with. However, it's an important aspect of managing a business with a simple set of steps that will save you lots of stress. Credit card companies still want for you to achieve success and protect their customers so you must follow the process to maintain your good name.

If you opt to completely ignore chargebacks, however the situation can get complicated. The following is the process of ignoring or unchecked chargebacks:

In the beginning, you'll lose income and profit from the sale and have to be charged a cost on top of that loss.

If your dispute numbers start to increase and you fail to manage them the card company may impose fines or higher fees until you bring the chargeback percentage to a lower level. If your issue persists, you might be restricted from accessing portions of your revenue from sales. Finally, they can eventually stop allowing the payments and label your account as high-risk.

This could keep the other card companies from doing business with you. And if you can't accept payment online, it's impossible to really run your business.

It's true that this is a rare instance. It's totally preventable if you take the right actions.

What is a dispute threshold?

The threshold of dispute, or the threshold for chargeback is the method that card networks use to help determine when they should increase the monitoring of businesses or merchants to get them to reduce their dispute rate.

What's the dispute rate?

The "dispute rate" measures the amount of disputes that are disputed per total processed transactions in a given time period, such as one week. For example, if there were 500 payments processed in the course of a week, and only five of them were disputed and five were not, you'd have an average of 1% for the disputation rate for the week.

This differs from "dispute activity' that measures the percent of disputes in a given time period regardless of date of processing.

There is a difference in that dispute resolution is not awaited up to a few months or weeks following the purchase. This is what dispute activity incorporates. You might get five disputes during a single week, however if three were related to purchases which were made before that week, your rate of disputes would comprise two disputes from that week, but your dispute activity would include all five. This is more information on the subject from Stripe about calculating the number of disputes.

chart of dispute activity

Credit card networks usually use the activity of disputes to determine their limit on disputes. And again, each card network is governed by its own set of thresholds. The threshold can be determined based on dispute activity as well as the volume of dispute, or more commonly the two.

In particular, Visa will increase their penalty against businesses that have more than 100 chargebacks a month and 0.9 percentage of disputing activity. However, Mastercard's threshold for disputes starts at 1.5 1.5%.

The number of payments is beneficial for small businesses, because if you only receive 50 installments in one month and only one of them gets disputed, you're already at a 2% rate. This means that the threshold for volume keeps smaller companies from having to pay higher fines.

If you're using the Payments platform and have questions about how to best handle disputes, you can always contact the customer Customer Support Team for help.

What can I do to reduce the number of disputes that my store receives?

Now that you understand how disputes work There are a few strategies to help reduce your dispute rate.

1. Use a clear bank statement descriptor

An explicit statement description informs your customers of the place they purchased the product. It could immediately reduce the risk of disputes arising from unrecognized fees. They'll see your information and keep in mind that the purchase was legitimate and planned to make.

descriptor statement examples

If a client sees this on their statement and wonders about the charge the customer can call your number directly, rather than filing an appeal with the credit card provider, and you could resolve the issue by talking to them.

2. Include company information on the transaction receipts

The same reasons apply to the descriptor for banks, providing customers easy-to-read and accurate company information on their receipts increases chances that they'll contact you when they have a problem and not their credit card business.

Include the name of your business address, phone number, physical address as well as your logo, site, and a message about customer support. Be sure to not alter the information about the transaction on the receipt.

3. Resolve customer complaints quickly and find solutions

Be aware that there are at most seven causes of chargebacks. Many of them can be addressed prior to even reaching the dispute phase by providing good customer service.

When a client complains about the product's quality, its quality, damage in the delivery process, or any other aspects, listen to them and work together with them to fix the problem and avoid a chargeback.

4. Initiate contact before fulfilling an order that appears to be suspicious.

It's one of the most effective tools for preventing fraud. Being a smart company owner, it's essential to review your orders in the event of any sign of risk or fraud.

If you receive no response, especially with repeated attempts, or if your telephone number is invalid, consider refunding the order without shipping it.

Many other processors provide some sort of fraud detection measure, however they're not necessarily as user-friendly. With Payments, it's right on top of each transaction. You don't have to be on hold with your credit card company for the duration of your day.

5. Make sure you have proof of delivery

When possible, this can be an excellent piece of proof that you could use when a client claims that the order never arrived. Examples include, shipment tracking details, requiring a signature upon delivery and taking a picture of the item that was delivered and so on...

6. Clearly state policies

Your policy regarding refunds, returns, and cancellations affect your customers. to your customers. Make them part of the invoices or receipts you send out. Include them on your most important website webpages, like your checkout page. Include them on store displays. Even better, to have the person who is using your card confirm or sign the fact that they accept the terms of your offer.

7. Use accurate product descriptions

Product descriptions need to match the product. If a customer receives a product which isn't the item they believed they purchased, they may contest the charge because they'll assume you sent them the wrong product.

Attention to detail is crucial. Don't skimp.

8. Take out items that are no longer in stock or discontinued.

Take items off your online shop that are no more in stock, so that customers don't have to order something they won't get. It's possible to do similar for products that are not in stock, provided you're able to quickly and easily put an "out of stock' graphic on the relevant product pages, and keep up with this as status alters.

out of stock settings in

9. Be wary of international purchases

Certain types of fraud are an unfortunate reality in our day-to-day world, and orders from some regions may pose a higher chance of being a victim. It is recommended to select an option that has the ability to detect fraud in order to reduce the risk of fraud, for instance Payments.

10. As much information about your customers as is possible

It's not necessary for every company to have shipping data However, you should collect it nonetheless. This helps verify that a credit card holder is the person they say they are.

In every purchase, you will need the following information:

  • Name of the customer
  • Customer email
  • CVC number on their credit card
  • Postcode and billing address for full details.
  • Delivery address, if differs from the billing address

11. Tracking information for your shipment

Be prompt with the delivery of this. Once a customer has placed an order the item, they will receive the email with tracker details whenever feasible. Following that, they will be provided with regular notifications. This is a good way to prove in the event that a buyer claims they never received the item.

Strengthen your defenses against fraudulent charges

Are you looking to increase your detection of risky transactions? It's only one advantage from using Payments. It allows online companies to accept payment keep their name and reputation and increase profits.