How to Prevent Chargebacks

In this article, I will provide you with the six most powerful steps to prevent chargebacks from happening. 

I based these steps on my experience managing online businesses.

We will discuss:

• 6 ways to prevent chargebacks
• What chargebacks are
• How chargebacks happen and why customers do it 

Key Takeaways

• Business transparency is the default way to prevent a chargeback
• The technical way of preventing a chargeback is by using a fraud prevention program
• Once a transaction is completed, the only way to prevent a chargeback is by not letting an issue escalate

Why do chargebacks happen?

Chargebacks happen mainly because of unauthorized transactions or fraudulent activities. Essentially, a consumer is disputing the transaction, either because he did not make it, or he feels deceived. Fraud, however, is not the only reason customers file a chargeback case against sellers. 

Here are the most common reasons why chargebacks happen: 

• The buyer did not receive the item – this happens if an item gets lost in transit. In some cases, the seller did not ship the time on time, and the customer did not need the product anymore. 
• The goods are damaged or not as described – if the item the consumer received is not the same as what was shown in the product images, the consumer would consider this as fraud.  The same thing happens if the item shipped has missing parts. 

• The consumer gets charged more – this can happen if the price of the marketing material (images and videos) is different from what is on the billing system. This may be the seller’s fault, or the seller misled the consumer.
• The buyer did not make the transaction – this is referred to as an unauthorized transaction. Someone hacked the cardholder’s financial info and used it to make fraudulent transactions. Sometimes, it is the consumer’s children who make these purchases. 
• The consumer wants a refund – some consumers make purchases and regret it. They feel entitled to get their money back even if there is nothing wrong with the product. 
• The customer wants to end a subscription – some sellers make it difficult for consumers to cancel a monthly subscription. If this happens, a customer will file a chargeback. In some cases, sleazy corporations continue making charges to the card even if the customer already unsubscribed to the service. 

Some consumers just want items for free. Yes, a cardholder can make the purchase, and pretend he did not make it, or pretend he did not receive the item even if he did. 

6 Ways to Prevent Chargebacks

In this section, we will discuss the most effective ways by which you can prevent chargebacks from happening.

1. Use a Chargeback Software Program

There are programs you can use to prevent a chargeback. The two main types are fraud prevention tools and chargeback prevention software programs. 

A good example of a fraud prevention tool is Stripe Radar. This program learns from the billions of credit card transactions and then assigns a risk score for the transaction that Stripe processes. 

If a transaction is high-risk, Stripe will not let this payment through. As a merchant, the likelihood of you receiving money from a fraudster is low. 

The second type of tool you can use is Chargeback.IO. It is different from Stripe Radar because it detects the possibility of chargeback. With Stripe, the transaction will not happen to begin with. 

With Chargeback.IO, the transaction is already completed, but the AI knows if the customer is likely to start a dispute or chargeback. 

If the AI deems that the transaction is likely to end in a chargeback, the system will notify you. At this point, the chargeback has not occurred yet. It is merely a potentiality. 

Now, you can decide if you want to refund this customer or take the risk of working on a chargeback case. At best, you can reach out to the customer and ask if everything is alright and then work out a solution from there before it blows into a dispute.

2. Make Yourself Reachable

Consumers rarely dispute a charge if they know they can settle the issue. The problem escalates to a chargeback if they do not have the means to reach the seller. It is also possible that the consumer reached out to the seller, but the seller is unresponsive. 

Making yourself available prevents a chargeback because consumers can communicate with you. They are more likely to ask you first for a refund, or a different kind of settlement before they file a chargeback. 

To be reachable, we suggest the following things:

• Create different social media profiles where people can send you messages
• Publish your customer service email address and phone number
• Implement a chatbot that can answer frequently asked questions about purchases

You must spend some time every day checking your emails and messages and respond appropriately. You do not need to provide a resolution right away. A simple response acknowledging their concern, and a commitment that you will work on the issue, should suffice. 

In addition, make sure you are reachable on the same platform where you advertised. For example, if you launched an ad on Facebook, the customer must be able to reach you via Facebook. It does not make sense for a consumer who saw your ad on Facebook to reach out to you via Snapchat. 

3. Write a Visible and Clear Refund Policy

A refund policy is a line of defense against chargeback. Consumers today understand that they have rights, but sometimes, these rights can border on self-entitlement.

A clear refund policy can:

• Give a consumer hope that he can get his money back
• Deter a consumer from filing a chargeback because he knows he is in the wrong

Any consumer aware that he can get a refund, return the item, or get a replacement, will not call his credit card issuer. This customer will contact you and ask for a resolution. You will settle this dispute between you and the buyer, and the credit card issuer will not have any involvement in this. 

On the other hand, any buyer who knows he cannot return an item that he already used or destroyed is not likely to file a chargeback. If this return policy is clear, this customer would hesitate to file a chargeback, knowing that he is in no position to get his money back for an item he broke.  

4. Communicate Your Refund Policies

Although you have a clear return or refund policy, it will not serve its purpose if it is not visible. Always have a dedicated page for your return and refund policies. 

The best refund policy placements are: 

• On the product page, at the bottom of the product description
• A tab on the product page
• The footer of any page; use a link that takes the customer to your main return and refund policy page

In addition to this, you must use words that are easy to understand. Make your refund policy digestible and use bullet points to communicate your rules and expectations. 

Do not forget the most important details, such as the number of days they have to file a refund, the coverage, the amount you can refund, the refund for shipping, etc. 

5. Make All Transactions Clear 

What this means is that you must tell the consumer what he is buying. If it is a toy that needs a battery, make it clear and visible on the product page that batteries are not included in the product. 

If you are selling a set of products, like an inflatable swimming pool and an electric pump, say so. If a pump adapter is not part of the set, mention it. 

Do this, and a consumer will have clarity on what he is paying for. Think about this: would you rather mislead a customer by false marketing and risk a chargeback fee, or just tell a consumer what he gets and make him decide to buy or not? 

The better business decision is the latter. Be transparent about the product, what it is, what it does, what’s included, and what the exclusions are. 

If a customer contacts you saying that there is no battery, you can always point out that your product page clearly stipulates that batteries are not included. This should make the customer realize that he has unfounded expectations and prevent him from making chargeback claims. 

6.  Keep Transaction Records

Finally, keep a record of transactions and their details. If you do everything digitally, then this should not be an issue because all digital transactions are stored somewhere and should be accessible to you. 

If you have manual processes, such as printing shipping labels, it is a good idea to scan and save digital copies of them. You can use these documents later as evidence that you fulfilled your obligations as a seller.  

Without these records, you have nothing to show in your rebuttal letter. Ultimately, you will lose the chargeback case. 

Summary: Communication and honest business practices are the key to winning chargebacks. Always sell with honesty in mind so you and your customer won’t have any misunderstanding. 

What are chargebacks?

A chargeback is a formal complaint where a credit card user demands his money back. The recipient of the money is the seller, and a credit card company can take that money back from you. 

Chargebacks are a formal demand from the credit card provider telling you that the transaction you made with the customer, or the complainant, is fraudulent or questionable. 

FAQ: How to Prevent Chargebacks

How can sellers avoid chargebacks?

Sellers can avoid chargebacks by doing business with transparency, honesty, and compliance with legal and best business practices. 

How to fight against chargebacks?

You can fight a chargeback with a rebuttal letter. It is a formal letter that provides details about the transaction, and an explanation proving that you, as the seller, did business in good faith.  

How to minimize chargebacks?

You can minimize chargebacks by being reachable, having a clear refund policy, and using chargeback prevention software like Chargeback.IO.

Can a chargeback be stopped?

Yes, you can stop a chargeback from happening through technical intervention. If you integrate Chargeback.IO with your payment processor, it will detect disputes and allow you to address them before they become a chargeback. 

Summary

What I recommend from here is to go back to the six steps in our list and check your business processes.

If you do not have these processes, I suggest that you start implementing them. Next, I encourage you to check out Chargeback.IO and try it for free.