Chargeback
A chargeback occurs when a credit or debit card payment is returned to a customer by a business or merchant. This happens when a consumer successfully disputes one of the purchases that are on their bank account statement.
Chargebacks can be granted for a variety of different reasons depending on the transaction in question. Usually, a cardholder has a limited timeframe in which they can dispute a charge. This is known as the chargeback period.
Keep reading to learn more about the chargeback process and how businesses can avoid chargebacks from happening.
Difference Between Chargebacks, Refunds, and Voided Charges
When disputing a transaction, customers generally have two different options, seeking a refund or a chargeback. A refund comes directly from the merchant, while chargebacks come from the customer’s card issuer.
When disputing a credit or debit card purchase, the first step for most customers is to seek a refund with the business from which the item or service was purchased. At times this may require a copy of the receipt and either going in person to the store or contacting online customer support.
However, the cardholder can also attempt to reverse the transaction by simply initiating the chargeback with their card issuer. This is especially helpful if the original refund request was denied.
Some of the most common reasons for customers to ask for chargebacks include the following:
- There are unauthorized charges on the cardholder’s account
- A package wasn’t delivered even though the customer received confirmation of the delivery
- A transaction was incorrectly charged to the customer
- The items purchased were damaged or faulty
In contrast to chargebacks and refunds, a voided charge is a transaction that is canceled before it is settled through the consumer’s account. Until it is voided, the charge will appear as pending on the customer’s account for a short time period.
How to Prevent Chargebacks as a Business
Businesses dealing with many daily electronic charges are at the risk of high chargeback rates. These can cause problems for merchants as they often come with fees ranging between $20 and $100.
If a business has too many chargebacks, their account can be shut down or their transaction costs may increase to an unmanageable level. Therefore, it’s important that you take the appropriate steps to prevent credit card chargebacks if you are a merchant.
The best ways to prevent credit card chargebacks are as follows:
- Obtain credit card authorization or automated clearing house (ACH) authorization from customers
- Provide itemized receipts and attentive customer service
- Use secure payment verification measures and the correct processing technology
- Ensure that your business follows payment card industry (PCI) security standards
- Maintain detailed payment records
- Make all employees follow operational compliance measures
- Validate that the customer is using a card that is not expired
- Only accept credit cards with a signature on the back
- Establish clear refund policies
Another reason to establish chargeback prevention measures is to protect from friendly fraud. Friendly fraud is when a customer makes a purchase online and disputes the charge in a dishonest way.
Get a Free Credit Card Authorization Form
What is the Chargeback Process?
The chargeback process is initiated by the customer contacting the issuing bank. The card issuer then facilitates the chargeback by communicating with their card processing network. The signal is then received by the merchant’s bank, which authorizes the transfer of funds if the merchant confirms the chargeback.
In cases when charges are fraudulent, the issuing bank may also send the claim to a collection department. While the claim is being resolved, the bank takes on related liabilities and expenses the chargeback through reserve funds.
A chargeback occurs when a credit or debit card payment is returned to a customer by a business or merchant. This happens when a consumer successfully disputes one of the purchases that are on their bank account statement.
Chargebacks can be granted for a variety of different reasons depending on the transaction in question. Usually, a cardholder has a limited timeframe in which they can dispute a charge. This is known as the chargeback period.
Keep reading to learn more about the chargeback process and how businesses can avoid chargebacks from happening.
Difference Between Chargebacks, Refunds, and Voided Charges
When disputing a transaction, customers generally have two different options, seeking a refund or a chargeback. A refund comes directly from the merchant, while chargebacks come from the customer’s card issuer.
When disputing a credit or debit card purchase, the first step for most customers is to seek a refund with the business from which the item or service was purchased. At times this may require a copy of the receipt and either going in person to the store or contacting online customer support.
However, the cardholder can also attempt to reverse the transaction by simply initiating the chargeback with their card issuer. This is especially helpful if the original refund request was denied.
Some of the most common reasons for customers to ask for chargebacks include the following:
- There are unauthorized charges on the cardholder’s account
- A package wasn’t delivered even though the customer received confirmation of the delivery
- A transaction was incorrectly charged to the customer
- The items purchased were damaged or faulty
In contrast to chargebacks and refunds, a voided charge is a transaction that is canceled before it is settled through the consumer’s account. Until it is voided, the charge will appear as pending on the customer’s account for a short time period.
How to Prevent Chargebacks as a Business
Businesses dealing with many daily electronic charges are at the risk of high chargeback rates. These can cause problems for merchants as they often come with fees ranging between $20 and $100.
If a business has too many chargebacks, their account can be shut down or their transaction costs may increase to an unmanageable level. Therefore, it’s important that you take the appropriate steps to prevent credit card chargebacks if you are a merchant.
The best ways to prevent credit card chargebacks are as follows:
- Obtain credit card authorization or automated clearing house (ACH) authorization from customers
- Provide itemized receipts and attentive customer service
- Use secure payment verification measures and the correct processing technology
- Ensure that your business follows payment card industry (PCI) security standards
- Maintain detailed payment records
- Make all employees follow operational compliance measures
- Validate that the customer is using a card that is not expired
- Only accept credit cards with a signature on the back
- Establish clear refund policies
Another reason to establish chargeback prevention measures is to protect from friendly fraud. Friendly fraud is when a customer makes a purchase online and disputes the charge in a dishonest way.
Get a Free Credit Card Authorization Form
What is the Chargeback Process?
The chargeback process is initiated by the customer contacting the issuing bank. The card issuer then facilitates the chargeback by communicating with their card processing network. The signal is then received by the merchant’s bank, which authorizes the transfer of funds if the merchant confirms the chargeback.
In cases when charges are fraudulent, the issuing bank may also send the claim to a collection department. While the claim is being resolved, the bank takes on related liabilities and expenses the chargeback through reserve funds.