Dodging Dishonest Customer Chargebacks

Money Down the DrainCredit 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.

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29 Responses to “Dodging Dishonest Customer Chargebacks”

  1. Jestep says:

    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.

  2. 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.

  3. lance says:

    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!!!

  4. Bill says:

    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.

  5. Timbo says:

    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).

  6. 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.

  7. 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.

  8. Timbo says:


    The seller is usually the “shipper.”
    The transportation company that hauls it is the “carrier.” Just thought I’d add a little clarification.

  9. Timbo says:

    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.

  10. @ Car Audio and Timbo,

    Thanks for including your input :)

  11. 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.

    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.

  12. John says:

    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”

  13. Thanks for writing such a thorough article on chargebacks. I send my clients to read this post often and have put a link to it on my blog.

  14. klancy says:

    Good article, got anything for virtual goods?
    I am trying to find details on how to prosecute in civil and criminal courts, perhaps by using video/phone trials. Give me or my website a hollar if you find anything.

    • Hi Klancy,
      The legal aspects of ecommerce are outside my “jurisdiction.” Best to check with a lawyer than rely on Internet advice. Things may differ depending on where you are located, and where the alleged fraudster is located.

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  16. Tmax says:

    What we need is a registry where retailers can detail chargeback names and addresses. Even a signed copy of the order and a copy of a drivers licence or passport does not guarantee a win against unauthorized chargebacks. Even when shipped to the billing address!

    If anyone knows of a registry where we can all share information on customers pulling off these fraudulent chargebacks it would be great.

  17. Ryan Dunn says:

    I have created a tool for providing additional evidence in fraudulent customers trying issue errant charge backs. JeStep is right, they can always claim not as described. With that being said, I have seen some really good luck when the merchant brings key items like IP, ISP associated with IP, the region the IP look up can provide, and a literal true customer signature.

    You can get a really cheap signature tool that installs into any HTML code at

    securedmark [dot] com

    It works with PHP, ASP,, ruby on rails, and even basic HTML sites like WordPress.

    Hope that helps!

  18. 98yefe says:

    You recommended paypal. Shows what you know. Ebay/Paypal is a buying scammers playground. Sellers lose 9 times out of 10.

    I used to have a 1-2% fraud rate on both digital products and real merchandise. In both instances the fraudsters claim non receipt (no shipping on digital items = no paypal protection) and in physical cases the buyer purchases an expensive item and simply mails back an empty box or swapped item with a label number to show proof of return.

    Even extreme measures such as invisible merchandise marking,keeping serial #’s,etc mean nothing in protection. They have a label #proving return. They win in paypals eyes. There is no seller protection. There is no other real option. Google Checkout? Unsafe says Ebay. Who is this strange Google and are they safe? Can you say racket?

    Fraud ratio is as high as 10-15% now on Ebay. With current fee structure it is unsurvivable. Sellers need to stop relying on a one sided party and start pressing charges. When white collar criminal buyers go to jail for buying a new item and swapping with broken one, kindly ask to ship to ______ instead (nulls “protection”) or whatever scams they cook up this nonsense will stop.

    They aren’t customers if they walk out of the store with the register they put money in. They are crooks. Kneecaps need busting. Its time to stand up for ourselves. No room for kindness with these criminals.

    • Unfortunately credit cards are the same way. Have you had a better experience with credit cards than alternative payment options? Interestingly, the economy has an impact on fraud trends. It tends to fluctuate. Perhaps your increase compared to the past is due to desperate consumers rather than incompetence of payment processors?

  19. Donny says:

    Here’s some food for thought.
    I own a reputable online business printing t shirts.We shipped an order to a customer and mistakenly printed the deisgn on the wrong side.

    But here’s the catch, she is in California and we are in North Carolina.
    We offered to give free shipping. The box weighs aprox 40 pounds, so
    you can imagine the cost of shipping to the customer.
    However as I said I offered free shipping to her.
    So when she complained about it, we said no problem, just ship thack and we will re print a new order and ship that to you at no cost.
    Then we did not hear from her at all. Next thing we got was a letter with a credit card charge back. She expects me to pay for her shipping back to us, and the shipping to her.
    She didn’t waste a second, she filled the credit card charge back on the very same day she received the goods.

    My argument with the credit card company was a simple one. Does Walmart or Target refund you the gas money and your time to return merchandise?
    I offered free shipping on the original order, my contract also states that on returns, the customer is responsible for thcost of shipping back.
    The cradit card company completely ignored my contract, which by the way, the customer signed and initialed.

    Now I don’t mind re printing her order for free, after all it was printed on the wrong side.
    And I don’t mind shipping the new order to her free.
    But should I really be responsible for the cost of return shipping?

    • Every shop policy is different, but I think it depends on the reason for the return (as a customer service move, not as a legal or chargeback issue). As a customer, if I didn’t receive what I had ordered (vs. returned it because of a changed mind or other reason), I would expect the seller to eat the cost for shipping it back due to a mistake. As a goodwill thing. Otherwise the customer not only loses time but also extra money. From the business side, I would consider it an expense like you would spoiled goods.

      • Unfortunately, a chargeback was filed when it could have been resolved through customer service. The problem is some customers have knee-jerk reactions with chargebacks, and I think some believe the credit card pays it and are unaware how it affects merchants :(

    • James says:

      if you were the one who made the mistake, why should they pay to return it? that makes no sense

  20. Rod says:

    We have NEVER won a charge back with paypal. They do NOT FIGHT them for you as they state. Not fighting them gets a better rate with the CC companys. Yes chargebacks do go in trends with the economy as stated above. We had a customer file a chargeback after 6 months of use on a disc printer. It was a $3,800.00 printer. We never heard from him untill the chargeback was filed. Then he used the Not As described. (the wildcard that every customer uses automatically). He refused to return it and he still got his money back!. Stated on the phone he needed it for a big job he had but no longer needed it after the job was done.
    We were out the money and the product. It is total bull that a merchant is required to adhear to Paypal (card company) rules but the consumer is not required to adhear to the merchant contracts.

    Bottom Line, If you get notice of a chargeback, do not waste your time fighting it, just pay it and move on!!

  21. PJ says:

    Our company has had 3 fraudulent chargebacks inside of a year, large amounts, known as “I don’t recognize that charge” and we’ve lost every time. It doesn’t matter that the ‘cardholder’ didn’t notice that LARGE charge the next 2 billing statements, by the 3rd billing statement they somehow took notice. The problem now is that our percentage rates have increased due to these chargebacks even though we have a buffer in our account to cover them. In online businesses we don’t have the luxury of being able to look at the card and it’s understandable that the bank has to cover their backs. But still.

    BEWARE of the customer who wants to order an expensive item from your online store and wants it delivered to another address (especially watch out for ‘deliver to’: freight warehouses, PO boxes, etc) and demands it be done in a 24 hour period.

    We no longer allow shipment to another address. Too risky. They have to take delivery at the same address or it’s a ‘no sale’. Most of these problems came out of Florida. Thinking of not doing business with the whole state of Florida! Stinkin’ criminals!

  22. PJ says:


    As a vendor if you get a fraudulent customer chargeback and you win the customer can repeal it. You can use your ‘stop payment’ against the card’s issuing bank (they will NOT be happy about it) on that amount being taken out a 2nd time.

    Be warned though, you will have to refile that in 6 months (according to your bank’s policy it’s usually only good for 6 months) and/or it might get you a mark against your good credit with the 3 rating credit companies. Happened to me but worth the risk, because as a small business I couldn’t afford to lose $3500 because some customer ordered something, waited too long to try to return it then didn’t (said he left it sit out in the rain) and then filed a chargeback. That was my first one – it almost ruined me as a business owner.

    Oh and while we’re at it…anyone seen any of the 19 small business tax cuts Prez Obama said he gave us? I’m still looking. Ha!

    • Harry says:


      Does this ‘Stop Payment’ method works ? And if it is that easy, how many people have used this before and successful at it ?

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