Chargebacks Defined

A chargeback is a credit card processed sales transaction that occurs when your customer disputes the transaction or when you fail to follow proper credit card acceptance and authorization procedures. The result of a chargeback is a reversal of the transaction, the withdrawal of funds from your merchant account and a deposit of the funds back into your customer’s account.

The most common reasons for chargebacks are:

• The customer does not recognize the merchant’s name on their credit card statement
• The customer was charged for a purchase more than once
• The merchant failed to deliver the product or service
• The customer was dissatisfied with the product or service
• The customer claims that the purchase was fraudulent

What Chargebacks Cost You

Incurring a chargeback could include the lost value of the sale (including shipping costs), a possible chargeback processing fee, and non-reimbursement of the transaction fee associated with the original sale. Merchants that incur excessive chargebacks can expect:

• Possible fines from the card associations
• Higher processing rates on your merchant account
• Being labeled a high-risk account
• In extreme circumstances, losing your merchant account

Steps to Avoid Chargebacks

There are several steps you can take to avoid chargebacks, including:

• Never charging the sale before the item is shipped
• Never accepting a declined sale
• Not attempting a second authorization on a declined sale
• Following the proper procedures for processing the sales transaction
• Ensuring your customers know your business name and return/refund policies

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