As an e-commerce business owner, chargebacks can be deadly to your merchant account. A chargeback is similar to a refund. The difference is that instead of calling your business, the cardholder contacts their credit card issuing bank for their money back. When this happens, you not only lose out the sale, but you have to pay a chargeback fee for having to process the reverse transaction.
It’s also important to know the rules set by the credit card companies. Visa allows no more than 100 chargebacks per month and a chargeback ratio less than 2%. MasterCard allows no more than 50 chargebacks per month and a chargeback ratio less than 1%. Anything above these limits and your acquiring bank may terminate your merchant account.
If you’re a new business owner or you don’t know much about how to prevent chargebacks, then you’re in luck. Here are four killer ways to prevent chargebacks before they kill your merchant account.
1. Provide a Clear, Detailed Billing Descriptor
A billing descriptor is just as it sounds—a description of your business that appears on each billing statement. With a good billing descriptor, should give your customers no reason to contact their issuing bank. If you clearly state your company name and provide a customer service number, then cardholders will recognize your business and know how to reach you.
2. Use Email Receipts to Confirm Orders
Not everyone has access to a printer and not everyone cares to print confirmation pages. By sending email receipts, your customer will have their order saved to their inbox as a reference. If you need to fight a chargeback, you can use the email receipt as proof that your customer approved the transaction by not disputing the order at the time of the purchase.
3. Screen All Transactions
When processing credit cards online, you have the ability to screen transactions through your payment gateway. Look for orders that seem suspicious and may be fraudulent. If a fraudulent order appears on the real cardholder’s billing statement, they’re most likely going to contact their issuing bank and demand their money back—initiating a chargeback. If you can spot fraudulent orders before you ship the goods, you can prevent chargebacks and save the cardholder a lot of time and money.
4. Require Shipping Signatures
Some customers may try to scam you by claiming they never received their purchase. By using a shipping service that requires a signature upon receipt, you will definitely prevent a great deal of chargebacks. Shipping signatures provide proof that you sent your goods as promised and someone accepted the package.
If your efforts to prevent chargebacks fail, don’t worry. You can still fight them. Your acquiring bank will contact you when a customer initiates the chargeback, and you’ll have three days to fight it. All credit card companies require you to provide different supporting documents, but any document with a signature will definitely work in your favor. Requiring a photocopy of the credit card, a photo ID, or even a signature with the purchase will come in handy when fighting chargebacks.
Guest author Meghan Faye Wolff is the senior copywriter and marketing specialist for Instabill Corporation. Instabill provides international and offshore payment processing solutions to e-commerce and MOTO merchants worldwide. Meghan writes about social media marketing, word of mouth marking tips, tips for start-up businesses, and e-commerce and payments industry news on the Instabill blog.