What is a chargeback?
Disputes are no fun. Especially ones involving your customers. This is essentially what chargebacks are all about. Below, we’ll dive a bit deeper to help you understand the chargeback process, why you may have gotten one, and importantly — how to reduce your risk of getting one again.
A chargeback occurs when a credit card holder contacts his bank or credit card company to dispute a charge on his account. Common reasons for chargebacks include:
- The cardholder does not recognize the charge or recipient on the statement
- The cardholder did not receive the product or service
- The cardholder was unsatisfied with product or service
- The cardholder’s credit card was stolen or used without their permission
- The card transaction is invalidated by the card issuer.
- The settlement funds were sent in error by us, the bank, any affiliates or entities, or any suppliers or processors.
- The payment was suspected to be fraudulent
When a chargeback is issued, the total amount of the chargeback is forcibly removed from a merchant’s bank account. The funds will be removed from your available balance and held in reserve until the chargeback process is complete. The chargeback process is long and largely dependent on banks and issuers. In some cases, chargebacks may take up to a year or more to fully resolve.
If you have received a chargeback, you will be issued an email upon notification from the credit card company. If the funds in your Due account are insufficient to refund the payer, we will debit the bank account on file.
It is important to maintain a low chargeback rate (number of chargebacks/number of total successful payments). A high chargeback rate can result in slower processing times, higher reserves, and could result in the eventual closure of your Due account. Typically, we hold our merchants to maintain no greater than a 1% chargeback rate.
The chargeback email will explicitly detail the transaction and the reason behind it. As the merchant, you have two options: to concede or challenge.
Why was my withdrawal canceled or charged back?
If you’ve received an email or notification that a withdrawal was cancelled or created a chargeback, this could be for a couple of reasons:
- The username on your account does not match the legal name listed on the bank account you entered
- The bank account and/or routing number(s) entered does not match what the bank has on file (sometimes from a typo when entered) If the bank account had incorrect information, it may have been deleted and the funds would have been returned to your account.
To be sure we are able to send the funds back out to you, please be sure to enter your updated bank information as soon as possible.
What does it mean if I concede the chargeback?
By conceding a chargeback, you decide to not challenge the chargeback. You should concede a chargeback if you cannot prove that the good or service was actually provided. If you concede a chargeback, the total amount of the chargeback will be permanently removed from your bank account.
How do I challenge the chargeback?
If you believe that the payment has been wrongfully disputed, you have the ability to challenge the chargeback.
To challenge the chargeback, contact Due Support for further steps.
Here are some documents that can help you win your case:
- Invoice with services rendered and client contact information
- Email communication with client agreeing to terms of services and payment
- refunds policies as agreed to by the payer
- tracking numbers proving receipt of goods
- communication from the payer, acknowledging receipt of goods/services
Once submitted, Due will look over the information and decide whether or not we will fight against the cardholder’s bank on your behalf. We will fight the chargeback if we feel the information provided by you is sufficient to win the chargeback. We can only fight chargebacks on your behalf within three business days of receiving the chargeback, so make sure you submit information quickly!
Once information is submitted to challenge the chargeback, an email will be sent to you as notification. It can take 30-45 days for the credit card company to return with a decision on the dispute.
What happens if I win the chargeback?
If the chargeback is dropped against your account, the total amount of the chargeback will be released from your reserve into your available balance. You will be able to withdraw the total amount of the chargeback regardless of any other reserves you may have on your account. You will be notified if you have won a chargeback by email, but keep in mind that this process can take up to 45 business days.
How do I avoid chargebacks?
Chargebacks are intended to protect cardholders from fraud and against malicious merchant behavior. Most chargebacks you receive will likely be due to recognition issues (the cardholder does not recognize the charge from Due on his/her card). Other common reasons include the buyer not receiving the items or service (known as non-receipt) or claims that the good or service was not-as-described.
Non-receipt and not-as-described chargebacks are more within your control to prevent. We suggest keeping all tracking numbers on items that are shipped out. Make sure you are setting appropriate expectations with your customers as to when they can expect full service or delivery. Keeping good records is a great way to challenge chargebacks but providing outstanding service to your customers is the best way to avoid them all together. Stay in communication with customers to manage expectations and gauge their satisfaction. Be honest and upfront about any delays you are experiencing and be willing to issue refunds.
Chargebacks are a long process that can ultimately result in the closure of your Due account. It's important you keep an eye on the number of chargebacks you receive and work to minimize that number. For more ideas on preventing chargebacks feel free to call, email or chat with our Support team!
What actually happens when a chargeback occurs?
There’s an entire process already underway by the time you receive notice that you’ve been issued a chargeback. The process unfolds like this:
- The cardholder notices something is wrong and calls the bank to dispute the charge.
- The cardholder’s bank issues a chargeback, issuing the cardholder a provisional refund of the full amount of the charge.
- To cover this provisional refund, the total amount of the chargeback plus a non-refundable fee ranging from $15 to $30 is deducted from the available balance in your merchant account and withheld until the chargeback investigation process is complete.
- If the funds in your merchant account aren’t sufficient to cover the amount of the chargeback and fee, the bank account you have on file will be debited accordingly.
- At this point, you can either concede or challenge the chargeback. If you concede, you accept responsibility and the money is not returned to your account. If you challenge the chargeback, you have the opportunity to present evidence that the transaction was valid and should have been completed. If you’re successful, the refund to the cardholder will be reversed and you’ll reclaim the funds (although not the fee, usually).
This process can be complicated and time-consuming, involving a lot of paperwork and documentation at every step. It’s a headache to deal with regardless of the outcome, which is why it’s important to learn what causes chargebacks in the first place so that you know what steps to take to prevent them.
What are the common causes of chargebacks and how do I reduce my chances of getting one?
There are many reasons why chargebacks happen, but the four most common reasons are:
- The cardholder’s credit card was stolen or used without their permission. If your customer sees a charge from your business but never bought anything from you, it could indicate fraud. This will likely result in a chargeback. All payments processed through Due are run through a risk algorithm that monitors your transactions for suspicious activity, automatically weeding out those likely to be fraudulent.
- The cardholder was unsatisfied with your product or service. Cardholders are likely to issue a chargeback if they receive a product or service that is not in line with their expectations or is defective. Another situation that applies here is when a customer doesn’t receive the good or service that they paid for at all.
- There was a technical error. Chargebacks due to technical error are initiated by card issuers and do not actually involve cardholder disputes. These types of chargebacks are issued in response to processing glitches. For example, if the bank accidentally deposits a bunch of money into your account, it will issue a chargeback to recover the funds.
- There was a clerical error. There are a couple scenarios that apply here. The first case is when a cardholder is charged a recurring payment even though the cardholder had canceled the contract or automatic payment arrangement using the card. The second case is when a cardholder has not yet received refunds for returned goods or canceled services.
What if I want to dispute a chargeback? How do I do that?
There are a couple things you must do if you decide to challenge a chargeback:
- Provide evidence the transaction was legitimate. The email you received from Due will detail the transaction in question and specify the documentation needed to challenge the chargeback. Documents may include but are not limited to, sales receipts, proof of delivery, customer purchase history, and independent quality measures.
- Let the process play out. Once Due receives your chargeback challenge and any supporting documents, they will contest the chargeback on your behalf with the appropriate issuing bank. If you win the chargeback dispute, Due will immediately send you a notification and release the disputed funds back to your account.
How do I reduce my chances of getting a chargeback altogether?
There are several best practices you can implement to reduce your chargeback rate:
- Deliver excellence service. Pride yourself on running a business that prioritizes quality and customer experience. Furthermore, as refunds are less of a hassle to deal with than chargebacks, we recommend highlighting ways a customer can contact you if they are unsatisfied with the product or service they received. Include your support team’s email address or 800 number, and make your refund policy simple and transparent. This will help ensure that customers choose the option that costs you the least money.
- Provide friendly reminders. Don’t give your customer the opportunity to mistake a legitimate transaction for fraud!.
- Ensure you have a streamlined shipping process in place and always set appropriate expectations with your customers as to when they can expect full service or delivery. We also suggest keeping all tracking numbers on items that are shipped out.
Tips to Reduce Your Chargeback Rates