Consequences of chargebacks

Have you ever had your Merchant Account shut down because of chargebacks? As a result, you may require a High Risk Merchant Account in order to process credit cards. A chargeback is a form of customer protection provided by issuing banks that allows cardholders to file a complaint regarding transactions on their statement. There are many reasons for chargebacks, but the most common are returned merchandise, customer disputes, fraud, payment processing errors and authorization issues with a credit card. Chargebacks protect the customer, but they are costly to both the business accepting the credit card and to the bank that issues the credit card.

How to Avoid Chargebacks

There are ways to decrease the number of chargebacks your business generates. Be sure to keep the following principles in mind:

• Communication. Stay in touch with your customers throughout the transaction. For instance, send a purchase confirmation to the customer that clearly identifies the name of your business as it will appear on their statement and make sure you have a customer service phone number so customers can resolve disputes via phone rather than resorting to a chargeback.

• Keep careful records. Maintain careful records of each transaction so you can provide documentation when responding to a customer dispute. For example, keep a record of all sales drafts so they are readily available should an issuer ask for a copy of the transaction.

• Pay attention to the details during the authorization process. Make sure you get all of the details correct. This means asking customers to enter or say the card number twice to ensure accuracy, asking for the card’s security code and checking the card’s expiration date.

• Deliver the highest quality service/product possible. Strive for high quality to reduce complaints. Ensure proper packaging of shipped goods so they don’t get damaged in transit and make sure the service you provide is exactly as described.

5 Tips to Reduce Chargebacks

Incorporate these five simple tips into your procedure when processing credit cards and you will greatly reduce the likelihood of chargebacks:

1. Do not attempt to authorize a card that has been declined. A “decline code” means that the issuer of the card does not approve the transaction. Do not attempt to authorize a card again if it has been declined. Do not attempt to resubmit the card with a lower amount to see if it will go through. Once authorization has been refused, ask your customer for another form of payment.

1. Use a top tier provider that has industry expertise. You will need a specialized credit card processor that has the banking relationships you need to underwrite your high risk business model. There are multiple banks and credit card processors that support and specialize in high risk accounts. Examples include companies like HighRiskAccount, AdultMerchantService, MerchantProcessor and High Risk Payment Gateway.

2. Quickly process refunds to your customers. You should quickly process any refund requests made by a customer to avoid a chargeback. Make the refund using the same card that was used to make the purchase. Additionally, always have your cancellation and refund policy clearly posted on your website. This helps to avoid any confusion, since the policy is clearly laid out in writing. Ideally, you should have the customer click on an “I Agree” button before making a purchase.

3. Promptly respond to requests to cancel recurring charges. If a customer asks to cancel a recurring charge for a service that is billed periodically, such as monthly, quarterly or annually, take immediate action. Be sure to communicate with the customer when doing so. Let them know you have received their request and inform them of the effective date of cancellation. Doing so will reduce the risk of chargebacks.

4. Respond promptly to disputes regarding quality of merchandise and/or service. Respond to customer complaints regarding the quality of your product or service immediately. You can first attempt to resolve the issue. For instance, if the merchandise is defective, offer to replace it at no additional cost. Keep careful records of your communication regarding the complaint. In many cases, it is best to simply issue a complete refund to satisfy the customer and avoid a chargeback.

5. Stay in communication with your customers regarding their transaction. This is essential. If merchandise will be delayed for any reason, let your customer know. If the merchandise is on back order, communicate with your customer immediately and let them know that the merchandise shipment will be delayed. If the item is no longer available, give the customer the option of substituting a similar item or of canceling the transaction altogether. Do not make these decisions for them and do not delay informing your customers about stocking and shipment issues.

We can help

Whether your business is processing 8 million dollars a month or $25,000 a month, we can help you get approved for a High Risk Merchant Account, regardless of your chargeback rate. When obtaining a Merchant Account with us, be transparent and let us know why your account has been terminated and provide statements and other information. We can work to get you a high risk merchant account with favorable terms and get your business back on its feet.

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