Understanding Chargebacks and Legitimate Prevention Methods

As unfortunate as it may be, the simple reality is that fraud attempts in the financial world are never going away. Unscrupulous individuals will always try to get a leg up and make some easy cash off honest people, and one area among many where they may attempt these schemes is within the credit card processing world.

At Merchant Card Advisors, we offer high-quality business credit card processing services that help protect you from a variety of fraud types and similar risks. One term that’s often associated with fraud, both in reality and in a slightly exaggerated reputation, is the “chargeback.” What is a chargeback, what are some of the issues with third-party services who claim to prevent chargebacks, and how can you actually limit your risks here?

Chargeback Definition and Causes

A chargeback refers to an instance where a credit card provider demands that a retailer make good on the loss of a disputed transaction. In many cases, such disputes can arise due to attempted fraud of some type.

However, it’s vital to note that while chargebacks are often associated with fraud, there are several potential causes of a chargeback request that do not actually relate to fraud at all. They may stem from customer service problems, or from issues with clarity in customer guarantees or product warranties. One of the top tips we can offer on limiting chargeback risks is being extremely clear with all branding, warranty and sale language so there is no possible confusion on a future credit card statement or processing request.

Chargeback Services and Their Issues

As a result of the reputation chargebacks have built, they’ve given rise to a number of third-party businesses known as chargeback services. These businesses claim to offer protection for merchants against chargeback risks, but the reality is that for many small businesses, this is rarely a good route to take.

This is because these companies, in the vast majority of cases, only perform monitoring on your accounts. They alert you anytime a dispute is filed – but the problem is, chargebacks are often already filed, and money pulled from your account, before this notification comes in. So what’s the point? You’re still on the hook for working with the CC processor to get the right documentation and dispute the chargeback.

In rare cases, chargeback services will actually provide insurance to reimburse funds lost due to fraud or other chargebacks. This is the only situation where such a service should be something you legitimately consider.

Chargeback Prevention

So what can you actually do to prevent chargebacks? On top of our tip above about being extremely clear with branding and sale language for all purchases, we also recommend issuing refunds quickly when they’re needed, plus keeping records of such refunds for at least six months. If you’re receiving constant chargebacks, you need to consider better steps to protect yourself from fraud or other confusion issues.

For more on avoiding chargebacks, or to learn about any of our credit card processing services, speak to the staff at Merchant Card Advisors today.

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