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
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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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