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How do you manage and prevent Paybacks, Chargebacks, or Disputes

Jan 17, 2023

In some cases, when you operate an online store when you sell something, and then receive a demand notice. This usually happens weeks or even months - after the sale. You'll have administrative issues to handle as well as the chance of losing the revenue from the sale, and less time to focus on the running of your business.

While this is usually not a frequent occurrence If it occurs on a regular basis, important partners like credit card companies could start to levy fines, impose stricter rules, or end ties with your company.

Good news is having a plan in place to stop disputes from happening and to manage them when they do occur keeps your shop free of any aches. Even better news? Learn everything you need to know about this in this post.

Table of Contents

What exactly are dispute or chargebacks?

The payment dispute can happen anytime a cardholder contacts the credit card company they use to dispute a charge that was incurred on their account. The credit card company takes these complaints seriously, and if they find that the motive for the dispute is valid the company will issue a temporary credit on the customer's account as the dispute is addressed. This can also be referred to as a chargeback.

Why do chargebacks and disputes occur?

Two main reasons for disputes over payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

The two will be discussed in greater detail in a little bit more time.

On first sight, you would think you'd enjoy more control over the first one than the other. The truth is, you have some control over both of them, as you'll see.

Why merchants need to react to disputes

Payment disputes aren't something one can simply put off and hope that they disappear off. They will not. By ignoring them, you'll result in problems that escalate and will affect the longevity of your business.

The card networks monitor the rate of disputes (the ratio of confirmed transactions to disputed ones) and could charge more fees or issue penalties if yours is unfavorable.

What should you do if you get a chargeback

Here's what to do when you get a dispute with your payment Notice of a payment dispute:

Respond immediately

If the card network begins with an inquiry, you must respond as quickly as possible. If you use Payments, you'll be notified of any disputes through emails and an inbox message on the dashboard.

If you don't respond within an extremely short period of time causes them to presume you're not planning to dispute the issue. Every card company has its specific timeframes for when the dispute investigation is open, but you'll want to carefully gather evidence while making sure you submit the evidence prior to when the period runs out.

If you're using PayPal, you'll be able to log in easily the dashboard of your store to reply to the issue.

dispute response in Payments

Provide documentation

In the next step, give solid and unambiguous proof of the particular transaction. The evidence should include the credit card's number (or the version that is truncated) along with the date and value of the transaction as well as any order details or proof of delivery on file.

This information will allow them to eliminate the possibility of fraud, as well as ensure that everyone is on the same knowledge of the circumstances.

Submit requested evidence

Apart from the normal document, the credit card company could request additional details about the transaction. If they don't, you should send it anyway. The time spent gathering all the required documentation is time well spent but ensure that you've got everything in order and sent it prior to the deadline.

The kind of proof that you provide will be contingent on the kind of payment issue you're dealing with. There are at minimum seven different types of dispute over payment:

  1. The refund wasn't processed
  2. Multiple charges
  3. Fraudulent charges
  4. Unrecognized charges
  5. Product not received
  6. Product unacceptable
  7. Subscription canceled

What happens if you fail to respond to charges?

The concept of chargebacks may seem daunting or complicated to handle. Yet, they are an essential aspect of managing a business by following a few simple steps will save you lots of anxiety. Credit card companies still want your business to succeed in protecting their clients so you must follow the process to maintain an excellent reputation.

If you choose to totally disregard chargebacks however it can be difficult. Here's the progression of ignored or not checked chargebacks:

The first thing you do is lose profits and revenue generated by the sale. You also have to take a charge on top of that loss.

After that, if your disputes start to accumulate and you don't manage them the card company might impose more fines and higher fees until you bring your chargeback rate to a lower level. If you continue to have issues then you could be barred to accessing certain portions of the sales you earn. Then, eventually, they will stop allowing payment, as well as mark your account as risky.

This might stop the other card companies from wanting to do business with your company. And if you can't accept payment online, it's impossible to effectively run your business.

Of course, this is a rare instance. This is completely preventable if you follow the correct actions.

What is a threshold of dispute?

The threshold for dispute, also known as the the threshold for chargeback is the method that card networks use to help them decide when to increase the monitoring of a merchant or business so that they can reduce their dispute rate.

What's the dispute rate?

The 'dispute rate' measures the amount of disputes that are disputed per transaction processed over an allotted time for example, a week. So, if you had 500 transactions processed over a week and five percent of them were challenged and five were not, you'd have one percent percentage of disputes for that week.

This is distinct from 'dispute activity,' which measures the percentage of disputes that occur in an arbitrary timeframe regardless of the date for processing.

The difference is that some disputes don't happen for a period of time following the purchase. That's what the process of dispute incorporates. It is possible to have five disputes during a single week, however if three of those relate to purchases earlier in the week, then the rate of dispute would include the two from this week. However, your dispute activity would include all five. This is more information on the subject from Stripe about calculating disputes.

chart of dispute activity

Credit card networks typically use dispute activity for their limit on disputes. And again, each card company will have its own specific threshold. The threshold can be determined based on dispute activity as well as the volume of dispute or, in the case of more frequent disputes, both.

For instance, Visa will increase their penalties against a business with more than 100 chargebacks a month and 0.9 percent disputing activity. But Mastercard's dispute threshold begins at 1.5 percent.

The volume number is helpful for smaller businesses since if you only receive fifty payments during a month, and just one is disputed, you're already at a 2percent rate. This means that the threshold for volume keeps smaller companies from having to pay higher penalties.

If you're using Payments and have questions about how best to deal with issues, it's always possible to contact the customer support team for assistance.

How can I lower my online store's dispute rate?

Once you know the nature of disputes There are a few strategies that can help you decrease the amount of disputes that you face.

1. Use a clear bank statement descriptor

An accurate statement of description will inform your buyers of where they bought an item. This can help reduce the number of the risk of disputes arising from unrecognized fees. The company will see your details and remember that, yes, it's a legitimate purchase they planned to purchase.

descriptor statement examples

And if a customer sees this on their statement and is puzzled by the charge and wants to contact your number directly, rather than filing an appeal with the credit card company. In this case, you could resolve the issue through the credit card company.

2. Put company info on transactions receipts

The same reasons apply to the bank descriptor, giving customers easy-to-read and accurate data about the company on their receipt will increase the chance that they'll call you if there's a problem instead of the credit card company.

Include your company name, location, contact information as well as your logo, site, and a message about the customer service. Be sure to not alter the information about the transaction on the receipt.

3. Respond to customer complaints promptly and seek solutions

Keep in mind that there are at least seven reasons for chargebacks. A lot of these can be solved prior to reaching the dispute stage simply through providing excellent customer service.

If someone complains about a product, the quality of it, any damage that occurred in the delivery process, or any other issues, you should listen to them, and then work with them to solve the issue and avoid the possibility of a chargeback.

4. Contact the company before executing suspicious orders

This is one of your greatest tools you can use to fight fraud. Being a smart business owner, it's important to check your order for any indication of fraud or danger.

If you don't receive a response, particularly after repeated attempts or the telephone number is incorrect, you may want to consider refunding your order without shipping it.

Many other processors provide an element of fraud-detection measurement, but they'ren't necessarily as user-friendly. When you use Payments, the metric is at the bottom of every transaction. There's no need to sit on hold for your credit card company for half the entire day.

5. Get proof of delivery

If you can, this will be an excellent piece of proof to use in which a buyer claims that their item never came. Examples include, shipment tracking specifics, needing the delivery person to sign for it and taking a picture of the final delivered item or item, etc...

6. It is imperative to clearly state the policy

The policies you have regarding returns, refunds and cancellations are important for your clients. Make them part of your invoices or receipts. Include them on your most important website webpages, like your checkout page. Include them on store displays. Even better, to have the person who is using your card accept or sign a declaration that they agree to your terms.

7. Use accurate product descriptions

Product descriptions need to match the actual product. If the cardholder is sent something that seems different from the item they believed they purchased The cardholder may dispute the amount because they'll think you sent them the wrong item.

Details matter. Don't skimp.

8. Get rid of items that are discontinued or no longer available.

Eliminate items from your store that aren't in stock, so that customers don't have to order an item they'll never receive. You might consider doing similar for products that are out of stock, unless you are able to easily and precisely include an 'out of stock' icon on your product's pages, and keep up with it as the status shifts.

out of stock settings in

9. Be cautious with international orders

Certain kinds of frauds can be a reality the present day as orders made from certain locations could pose more threat. It's best to pick the payment method that incorporates fraud detection to help mitigate this risk, such as Payments.

10. Collect as much customer information as is possible

It's not necessary for every company to have shipping data however, it is a good idea to collect it. This helps verify that a cardholder is who they claim to be.

In every purchase, you will need these details:

  • Customer name
  • Customer email
  • CVC number on the card
  • Full billing address and postcode
  • Address for shipping, in the event that it is not the same as billing

11. Send shipment tracking information

It is important to be prompt when you do the delivery of this. When a client places an order, they should receive an email with the tracking information as soon as is possible. Then, they'll be provided with regular updates. This serves as more evidence in the event that a buyer claims they never received the item.

Strengthen your defenses against fraudulent charges

Are you looking to increase your detection of risky transactions? This is just one of the benefits of using Payments, which assists online businesses to accept payments, preserve their reputation, and boost profits.