Dodging Dishonest Customer Chargebacks
Credit card companies protect consumers against credit card fraud by taking care of disputes whether they be incorrect amounts, credit card fraud, stolen credit cards or if the merchant never delivered the goods, or faulty goods.
These refunds are called chargebacks. Not only are they disappointing, but they can be downright dangerous to your online business, putting your merchant account at risk if you receive too many.
As an online retailer, you face the threat of customers that make a purchase, file a phony dispute with their credit card company and keep the merchandise and their money. And credit card companies have the right to pull that money from your merchant account (credit card companies don’t cover the cost themselves) – leaving you without the product and without the cash.
Common Credit Card Chargeback Cons
There are 5 common chargeback tricks that dishonest customers may pull:
1. Claim merchandise was never delivered.
2. Claim merchandise was returned, but the merchant never refunded the money.
3. Claim order was cancelled but shipped anyway.
4. Claim merchandise was damaged or otherwise unsatisfactory.
5. Claim they were not the one who ordered the product (credit card fraud).
Chargeback Comebacks
After disputes are filed, the customer’s credit card company will conduct a two week investigation. But your chances of winning the dispute are greatly improved if you follow this advice:
- Use a delivery service that tracks orders and requires a signature upon delivery. Make sure you print or PDF these records as shipping companies may not hang on to this data for you beyond 60 days. In case of a Trick #1 dispute, you can prove the goods were received.
- You’ll also want to require returns be shipped in the same manner back to you should your customer desire a refund. This way, you can prove to a credit card company that the goods never came back should customer pull Trick #2.
- Make your return policy complete with time frame for returns and any other conditions, such as restocking fees clear on your website, in confirmation emails and even on your packing slip. This is all solid backup during an investigation should customers say they were unaware of your policies.
- If a customer pulls Trick #3 or #4, your return policy should state that you will happily provide refunds upon return of the merchandise. Because shipping product as soon as possible is good customer service, you should remind customers upon order confirmation about your cancellation policies and time limits.
- Hang on to customer support tickets and email correspondence. Credit card companies want customers to try to work out the dispute with you first. If you can prove in writing that the goods did arrive, or you made every attempt to satisfy your customer’s problem, you have a better case. If you serve the customer by telephone, type up an email message summarizing the conversation. It’s better than nothing.
Jeremy Zongker, CEO of Creditor Web, an information resource on credit cards and credit card processing offers these additional tips:
- Require additional information at checkout – Collecting additional verifiable info like address and zip code makes the fraud more difficult for scammers and will not only reduce your risk of chargebacks, but will often allow you to get a better rate from your processing provider.
- Only ship to the billing address – By not allowing separate shipping and billing addresses you make it significantly more difficult for scammers to obtain the goods.
- Accept Payments from Paypal – Paypal offers their Seller Protection program that protects sellers against fraudulent transactions up to $5,000.
Honest Mistakes
Sometimes a customer may not recognize your merchant name on her statement, or even worse, your merchant name is different than your online store name (a parent company, perhaps). Please make sure you don’t confuse your customer this way!
There are merchant account providers who will list your phone number on the statement so customers can call you before the credit card company.
The problem with any ecommerce transaction and chargebacks is that in the end the customer can pull out the “product not as described” reason and still win. You can have a signed deliver confirmation and as soon as most banks hear that one, the merchant loses. It’s getting a little more reasonable for an ecommerce site to fight chargebacks but right now the customer still always wins.
A few other problems which lie mainly in the back-end credit card processing systems, is that there is no automatic name verification system. Basically, you can put in any name you want on a transaction, and it wont stop it from processing. A merchant would have to call the issuing bank to verify the name of the cardholder. Additionally, AVS only matches the ZIP reliably, as the street address is still a long shot.
Lastly, how many online businesses have the time to print out PDF’s of the orders they ship. I would have to employ someone full time just for that purpose, and unless I’m setting something really expensive, it’s not worth the time in the end.
Hi Jestep,
Regarding the not-as-described, it helps to have a return policy that addresses this issue, it can help you in the investigation. A customer should send something back if they are not satisfied before asking for a chargeback.
You’re right that there are limitations with AVS, especially when you’re dealing with international orders. Like you said, address can vary (First street vs. 1st Street and that can cause issues with the AVS).
If you find you’re having a problem with chargebacks, you might want to do the pdf thing or at least program something that will keep records on your end, longer than the shipping company - if you have high ticket items and sell less product or are in an industry plagued by this type of behavior.
i own an entertainmnet service for male party strippers, we entertain at parties for birthdays, bachelorette parties etc. a lady that weve done business with many times in the past booked a large party with out strippers, we bill 200.00 per hour per entertainer, the party was an all day event and into the evening, the overall bill was 3 grand. the customer has used out services in the past and typically spends this much money. 3 months later we recieved a charge back for the 3 thousand bucks!! the money was debited out of my account and i had checks bounce etc, a total nightmare began!!! i tried to talk to the customer and figured out she was having financial problems and now an alcohol and pill problem. she was evasive and rude at this point. i then double checked my paperwork, sales reciepts, and total amounts, i faxed in same. all reciepts had verified drivers license info for verificaton purposes on same. i then recieved a call a day after the chargeback, the same idiot female customer was having another huge party and i said okay, we will take on your party and required them to pay by check. the reason for the request for a check was too have proof of payment for our servies on a date 2 days after the chargeback, why? because the ladys chargeback claim was that she had never used our service before and was claiming fraud! so this time i had a check on me to prove that in fact this person did use our service, even after charging back claiming fraud and that they didnt recognize the charges!! it gets worse! i followed all guidlines for processing the credit charges perfectly! and the ladys bank and my merchant allowed the lady to win a portion of the chargeback! so out of the 3 thousand bucks, i only recieved 500 in reverse fees! so i was given 500 back? it makes no sense! they said i should have documented all of the transactions on the slip individually per hour, i did!!! so i really got screwed here! im wondering what i should do to take action? should i go the cardholders bank? the fraud department with my paperwork? i think i should, i also want to possibly pursue civil damages and or criminal complaint for felony fraud! any help PLEASE SEND I IT MY WAY!! THIS LADY ROBBED US!!! HOW I DONT KONW!!!
The credit card company and the consumer will always win in a chargebck situation. Our company has eliminated foreign credit card orders mainly because of the sense of security you receive when getting an authorization number and AVS approval only to find out the credit card is stolen and the merchant is out the money. This is also went you will discover your mechant account processor, regardless of how many thousands of dollars you have given them, forgets you and washes their hands of your existance.
I have a problem with the “not as described” and/or damaged shipment. On an FOB Origin shipment, when the seller has fulfilled all their obligations, including proper packaging, title (ownership) passes when delivered to the carrier at origin. If the shipment is damaged in transit due to carrier negligence, then the carrier is liable to the buyer/customer for the value of the goods plus shipping charges. Hidden damage is another matter. There doesn’t seem to be a clear definition with regard to credit card purchases as to when an item is truly not as described by the seller or damaged shipment as it relates to carrier negligence and who is the proper party to file a claim and receive payment (viz. the beneficial owner).
Timbo,
That’s a really good point. Sellers could potentially ship out damaged goods and claim the shipper’s fault, or vice versa with a customer damaging the item intentionally to get a refund.
I have found that when making any kind of transaction you MUST have a signed copy of an invoice and if you want to keep yourself clear of chargebacks you MUST make sure this signature matches the signature on the card being used and a drivers license. This is one of the only other ways to keep yourself safe.
Most of my business is online so some of these factors aren’t always an option, but I have found for online transactions, when you make a confirmation phone call to verify the person is who they claim they are (match their IP with phone number and address etc etc) you almost always steer clear of fraud.
Once in a great while though it’s almost a never fail you will have someone slip through the cracks and you get a chargeback.
I would suggest you take your sales slips to the local police department and file for a theft.
Linda:
The seller is usually the “shipper.”
The transportation company that hauls it is the “carrier.” Just thought I’d add a little clarification.
p.s.
If the customer claims damage in transit there are specific steps they should take to protect a potential damage claim with the carrier. If they don’t do it right, it could negate the possibility of a successful claim against the carrier even though it was insured. UPS for instance has the whole procedure spelled out on their web site.
@ Car Audio and Timbo,
Thanks for including your input :)
No problem Linda =) In my first year of business it was very frustrating to me to try and find measures to protect myself with lets just say way too many chargebacks that first year. Now I try to post what I have found out in as many places as possible. I can honestly say with just a few new steps in my verification process cut my chargeback rate to less than half a percent.
P.S.
Another point I forgot that if you do decide to goto the police with a theft and the item that was stolen was something you actually mailed to a customer instead of say selling it local. It will work more in your favor to contact the police department in the area in which you sold the items. This is another reason I make the phone verification. The phone number targets a general area the cusotmer is located in and gives the police a phone number to trace if you have enough backing evidence.
Chargebacks get really frustrating. It seems like the credit card/merchant companies don’t have sufficient fraud protection and then it is the merchant left holding the bag. What is more frustrating is when we get chargebacks from a customer claiming not to have ordered the product and then they won’t even send the product back (with a prepaid shipping label) AURRRRGGG!!!
I have also had issues with checks and when I call local DA/Police they wont’ do anything. I actually had a bank’s fraud department guy (in Detroit -go figure)actually start laughing when I asked what I could do to get the DA to prosecute. He said “man this is detroit”