April 10, 2023

Merchant Services

What Happens When You Dispute a Charge

Merchant Services

When a customer disputes a charge with a business, aka a merchant, they will get their money back while an investigation takes place. If the customer wins the dispute, there can be additional charges to the merchant as a means of discouraging similar outcomes in the future. Understanding what happens when you dispute a charge and how to handle it from a business point of view is important.

Definition of a Chargeback

The chargeback definition is a return of money to a payer of some transaction, especially a credit card transaction. A chargeback means the customer is disputing the charge. They don't agree with the funds that have been removed from that account for that purchase. They have to do this within a given timeframe. Most card issuers give the customer 90 days to file a chargeback dispute, but some give them 120 days from the date of the charge.  The customer has to give a reason for the chargeback and share as much information as they can about their claim. Once it is submitted, the merchant account will be debited that payment amount. As a business owner, this means money is going to be removed from your account that you thought was yours to spend as you wish. Reducing the number of chargebacks experienced can help prevent those surprise money reversals from being a financial strain.  There are several common reasons why a chargeback may be filed. They include:

  • Customer doesn't recognize the business name and charge information
  • Customer doesn't agree with the amount charged
  • Recurring billing for memberships or payment plans
  • Customer says they didn't place the order
  • Customer says they didn't receive the order
  • Customer is unhappy with the product or service

In most instances, the customer feels they have a legitimate reason to file the chargeback. Once the situation is explored further, they may realize they didn't. For example, they may not recognize the business name and connect it with a purchase they made. Once information is shared with them about the purchase they recognize it and no longer dispute it.

If the amount is different to them, information should be presented to verify the amount they were charged. If they are billed for a membership or a payment plan, all of the terms of those offers should be fully disclosed to reduce the risk of chargeback disputes. Sometimes, the customer finds out someone else in the household made a purchase without their permission. If they say they didn't receive it, tracking information can be useful to prove when and where it was delivered.  Quality is important because consumers often file chargebacks when they aren't happy with the outcome of a given product or service. They may feel they were taken advantage of and want their money refunded. There are legitimate times when a customer didn't place an order and they were the victim of someone fraudulently using their card information.

What is Chargeback Fraud?

Unfortunately, Some consumers take advantage of the ability to file a chargeback. They may order merchandise and then claim there are issues with it. They may say they didn't get it to try to keep the item and get a refund for it. Chargeback fraud is the same as theft, and when it can be proven, the consumer can be prosecuted.

What to do when you get a Chargeback

Business owners should take action when they receive a chargeback notice. There is a given amount of time to do so. If that timeframe passes with no response the consumer is going to win the dispute. Each chargeback should be carefully reviewed and evaluated before documentation is submitted.  Stick to the facts about the issue. Explore your customer service logs to see if the customer has tried to resolve the issue online or by phone. If so, document the dates of the correspondence and the company replies to them. If there was no correspondence document that the customer has not reached out to the business regarding the issue.  The reason code for the dispute will determine the documentation to submit as proof the chargeback isn't valid. For example, if you have documentation the customer agreed to return merchandise for a refund but the merchandise hasn't been received yet the chargeback isn't valid. If the customer says they didn't receive the merchandise a tracking number verifying the shipper, the delivery date, and other details can prove it was delivered to the address they provided.  If it is found the business name a mistake, own up to it. For example, there may be a customer upset they were double billed. When you look at their account you do see there was a system glitch and they paid twice. Agree for the chargeback to be valid and they can keep the funds that were returned to them from your merchant account. The case will be closed at that time.  Once you have submitted your documentation about a chargeback, it will be reviewed by an objective third party. They will either decide in favor of the customer or in favor of the merchant. If they decide in favor of the customer you may incur additional fees which will be subtracted from your merchant account. Those fees can add up quickly if you lose several chargebacks.  If they decide in favor of the merchant, the money that was given back to the customer will be reversed. It will go back into your merchant account and then the case will be closed. Pay attention to the outcome of your chargebacks as they can indicate if you need to make some changes to your policies and procedures to reduce future chargebacks.

Reduce the Risk of Chargebacks

In addition to the financial hit when money goes back to the customer, chargebacks can jeopardize your merchant account. The provider may decide you have too many chargebacks and close your account. Do all you can to reduce the risk of future chargebacks. Pay attention to the reasons why customers are submitting them. If you see a pattern with a given issue, focus on resolving it.  For example, if you get several chargebacks because of a recurring membership fee, take a look at the policy for it. You may have the membership information clearly shared but customers aren't reading it before they sign up. Consider a second verification that says they agree to pay a given amount monthly for the membership before they can proceed with the checkout process.