Concrete Tips for Reducing Chargebacks and Mitigating Disputes

Chargebacks are a serious risk for merchants big and small. Whether a company operates primarily online or at physical locations, sleeping on chargebacks will cost them dearly. Each year, transaction disputes lead to billions of dollars in lost revenues. That’s why we’re going to outline some concrete steps you can take to reduce them.

A chargeback occurs when a customer contacts their card issuer, such as their bank, and disputes a charge. The reason for the dispute can vary, but cardholders may argue that the transaction was fraudulent. Or they might claim that the goods sold were not as described, were damaged, or were never delivered, among other things.

Unfortunately, some disingenuous customers abuse chargebacks to engage in “friendly fraud.” They may fraudulently file a chargeback to score free products, even though the merchant delivered the goods or services as agreed upon.

Still, some chargebacks are legitimate, but merchants can find themselves paying for issues outside of their control. For example, if someone loses their credit card and a criminal uses it to make a transaction, the merchant may be on the hook, not the cardholder.

Given the risks, it’s vital that merchants take steps to reduce chargebacks. Let’s take a look at some concrete actions you can take to mitigate disputes and fraud.

Require CVV and AVS Numbers

First, online merchants should require that customers enter the Card Verification Value (CVV). This number is found on credit and debit cards, typically on the back, and helps prove that the person making the transaction had possession of the card. If merchants fail to require customers to provide the CVV, then scammers can use card numbers even if they don’t have the card itself in hand.

Merchants should also utilize an Address Verification System (AVS). With this system, customers will have to confirm their addresses. Even if a criminal steals a physical credit card, and thus has both the CVV and the credit card number, they might not know the cardholder’s address.

By requiring both CVV and the AVS, you can reduce fraudulent transactions, which may reduce the number of chargebacks you get hit with. Also, if you don’t request that customers supply the CVV, you’ll struggle to win chargeback disputes. Banks often frown upon merchants who do not require the CVV. On the other hand, acquiring it offers substantial proof that the cardholder made the purchase.

Use a Clear Company Name and Billing Descriptors

Frequently, disputes are the result of miscommunication. Unclear billing descriptors and unrecognized company names are among the biggest culprits. You want to use a clear merchant descriptor, which is the business name that will appear on a credit or debit card statement.

Let’s say entrepreneur Jack Smith owns a restaurant called The Corner Pub. But instead of using “The Corner Pub” as a merchant descriptor, he uses “Jack Smith’s Pub.” Do you know what might happen? Some legitimate patrons will check their credit or debit card statement, see “Jack Smith’s Pub” and not recognize it. Then, they’ll file a dispute, thinking they’ve been defrauded.

Simply by using clear merchant descriptors and billing descriptors, you can reduce misunderstandings. This, in turn, often helps reduce disputes that lead to chargebacks.

Provide Responsive Customer Service

Let’s say a customer has a problem with an order. Perhaps the item was delivered broken or never arrived at all. Or maybe the merchant sent the wrong size, color, or whatever else. What’s the first thing a legitimate customer will do? Quite likely, they’ll get in touch with the merchant and try resolving matter.

If you provide a fast and responsive customer service experience, you can work with the customer to resolve the problem. You might issue a refund or offer to send them the right product. Or you could update the client about shipping information, delays, or whatever else.

If the merchant doesn’t respond, however, the customer may quickly turn to their bank and request a chargeback. And if the card issuer finds that your customer service or refund policy is difficult or non-existent, they’ll likely side with the cardholder.

Offer Shipment Tracking Information and Require Signed Receipts

Shipping can be a source of confusion for both merchants and customers. If you’re selling products online, once you hand off the goods to your shipper of choice, they’re largely outside of your control. And, of course, they are not in the customer’s hands until they’re delivered.

Fortunately, it’s relatively easy to track shipments these days and many shippers do provide real-time tracking information. Still, shipping data might not get updated in a timely manner. And packages can be delayed or misplaced. This may cause stress for both the merchant and the customer.

If the client thinks a shipment got lost, they may file a dispute. Likewise, if the products are delivered to the wrong address, the merchant could end up hit with a chargeback. Deliveries could also get stolen off porches or from mailboxes. And sadly, some unscrupulous customers may claim that a package was never handed over, when in fact it was.

It’s smart to provide customers with tracking information. This way, they can check in on the shipment and see where it is at. It’s also wise to require signed delivery, meaning the customer will have to sign off, helping prove that the package was delivered.

Setup Chargeback Alerts

Another option is to set up chargeback alerts. With these, banks can notify merchants of impending chargebacks when a transaction is disputed. Importantly, the alerts come in before the chargeback is filed, offering businesses a vital opportunity to prevent them. This will stop your chargeback ratio from rising and can also help you avoid chargeback fees.

To prevent the chargeback, you may have to provide a refund. This isn’t ideal, but refunding a purchase is often better than getting hit with a chargeback. Additionally, you’ll pay fees, and your chargeback ratio will rise, potentially resulting in increased processing fees or a payment processor could decline to work with you.

Use Dispute Management Solutions

As you can see, quite a bit goes into fighting chargebacks. Sadly, if you don’t take a proactive approach, it could cost your business substantial revenues.

Easier said than done though because managing disputes and mitigating chargebacks takes a lot of time, especially if you try to do everything manually. By using the right dispute management services, however, you can dramatically reduce the effort spent on various tasks.

The best chargeback management tools offer features like chargeback alerts. They can also help you gather data, such as billing descriptors, signed shipping receipts, and communications with customers. This way, you may save time while managing disputes, allowing you to focus on your core business.