Chargebacks can cost a business in terms of higher expenses and the loss of their merchant accounts. Here are some tips to prevent this.
Chargebacks are used by credit card companies to refund customers who were victims of fraud, whose orders were processed incorrectly or who were not satisfied with the quality of the product or service they received. While chargebacks are great for consumers, it is a real problem for legitimate businesses that are forced to refund customers, as well as incur bank charges for the transaction reversal. Fortunately, there are measures that can be used to prevent chargebacks or reduce the fees that are charged.
Why do Chargebacks Occur?
One of the most common reasons for a chargeback occurs when a customer receives a product of service they are not satisfied with. In some cases this happens because the customer misunderstood the description of what was being purchased, perhaps because the product description was not clear. The customer may also request a refund if the product itself was not of the quality or specifications that were expected.
It goes without saying that while a great marketing campaign will get customers to the site, and a great sales pitch may get them to make a purchase, it is a great product that will keep customers happy. Therefore, the first measure to employ in preventing or reducing chargebacks is to sell high-end products. In any case the terms of service and the return policy, as well as the product description must be clearly stated upfront to ensure that products are not returned because of a misunderstanding.
Though the business may have nothing to do with it, sometimes a refund request or chargeback may occur because of fraud. Especially in cases where a credit card was stolen and used to make a purchase, the customer and credit card company may request a reversal of the fraudulent transaction. Another reason a customer may request a transaction reversal could result from a simple mix-up in the order that was shipped.
How to Reduce and Prevent Chargebacks and Refund Requests
The first step in preventing chargebacks is to exceed the customer’s expectation by delivering a quality product. If customers are given excellent service and great value for their money, they will be less likely to return products for any reason, even if they do, they are more likely to accept a replacement and remain a customer.
Unfortunately, customers can sometimes become unreasonable and return products simply because they can. In such cases, a clearly stated purchase returns policy may give the business enough grounds to deny the return request. However, it is important to remember that it is sometimes better to keep the customer happy even when they are wrong; a customer is better than a sale.
Sometimes a simple telephone call is all it will take to bring the customer to his or her senses, especially when they are being unfair and unreasonable. A customer service agent may simply call to apologize to the customer for sending them a product that’s not up to scratch and ask them what aspects of the product or service they aren’t satisfied with; the guilt of trying to return a product that was legitimately ordered, and of high quality, may be enough to dissuade them.
The phone call can also be recorded (if local laws allow) to provide evidence to the credit card company of the legitimacy of the charges. However, it is important that this be done in a respectful and non-confrontational manner to prevent damage to the company’s reputation.
Measures to Deal With Fraud and Chargebacks
An important strategy to prevent chargebacks is to try and prevent fraud itself. Fraudsters often don’t have all the relevant information to use ill-gotten credit cards. Therefore incomplete and incorrect information on order forms may indicate that something is wrong. Of course, people often make mistakes, so it’s not wise to toss out all orders that look suspicious. Consider calling the potential customer to verify the particulars of the order and to verify its legitimacy to weed out the bad ones. Also require that all the fields in the order form be completed before allowing the order to proceed to checkout.
Chargebacks can be very expensive for the businesses to incur, despite the fact that they aren’t always to blame. Not only does the business stand to lose the product that they sent out to fill the order, but they also may have to refund the customer, incur a bank charge and risk losing their merchant account.
Chargebacks can be prevented by: selling a quality product in the first place; requiring that customers correctly complete the order form, as well as calling the customer to determine their reasons for returning a product. At the least, businesses should check the chargeback fee clauses in their credit card merchant account services contract before signing, to ensure that they are getting the best deal.