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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The opinions expressed here are of the individuals and do not necessarily reflect the views of Elastic Path.