How to Reduce Chargebacks – A Definitive Guide

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Libby James
Merchant Services Expert

Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.

Understanding Chargebacks

Chargebacks, Explained

In the world of business, chargebacks can be a challenging hurdle to navigate. But what exactly is a chargeback? Put simply, a chargeback is a demand from a credit card provider for a retailer to compensate for a disputed or fraudulent transaction. If your business involves mobile or online payments, it’s crucial to grasp the concept of chargebacks and, more importantly, to have a strategy in place to prevent them.



What is a Chargeback?

When a customer disputes a transaction on their bank statement or claims to have not received the purchased goods, their bank or credit card company promptly reimburses them. In the UK, this is commonly known as the chargeback scheme, which applies to transactions between £100 and £30 000.

 

Chargebacks can be a complex and costly problem for merchants, and many errors can occur when trying to address them. Resolving a chargeback dispute can be a time-consuming process, so it’s essential to understand your rights as a merchant to strengthen your case.

 

While it may not be possible to eliminate chargebacks entirely, there are measures you can put in place to reduce their occurrence. Let’s explore some user-focused tips to help you avoid chargebacks as much as possible.



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How to Minimise Chargebacks

Use a Recognisable Trading Name

 

Ensure your trading name is easily recognisable on customer statements. This connection helps customers identify their purchase and minimises unnecessary chargeback disputes.

 

Consider Chargeback Insurance

 

Invest in chargeback insurance for merchants, even though it may seem like an upfront cost. It can prove worthwhile if you encounter a bank chargeback fee. Having proper chargeback protection for merchants is crucial and using it when necessary is essential.

 

Provide Comprehensive Information

 

Furnish customers with as much information as possible during the purchase process. Detailed information helps reduce returns and questions about the service your company provides.

 

Set Up a Dedicated Customer Support Team

 

Having a dedicated team or person in place to handle purchase queries and returns can make a significant difference. This way, customers can contact your company to resolve any issues before initiating a chargeback procedure.

 

The timing of customer payments is also vital, as impatient customers may resort to chargebacks if there are delays in receiving their orders. Effective communication is key to managing customer expectations.

 

Consider Offering Refunds

 

Offering refunds for products or services can help reinforce trust in your brand and minimise chargebacks. Providing a product refund is generally less troublesome than dealing with a chargeback.



Understanding Chargeback Fees

Chargebacks can be costly and time-consuming for businesses. A fixed administration fee is charged by payment gateways and merchant account providers each time a chargeback occurs.

 

The Chargeback Time Limit

Customers typically have 120 days to claim a chargeback, with the time limit starting from the day they first reported a problem to the merchant. The timeframe can vary, but there is an overall cut-off point for Visa transactions at 540 days.



Fight a Chargeback

If you wish to dispute a chargeback, ensure you are equipped with evidence to support your claim, including:

 

Tracking numbers for items posted or signed for

 

Proof of refund, if issued

 

Any communications between your company and the purchaser

 

Tracking and regular updates, such as order received and item dispatched

 

With these details in hand, you have a higher chance of successfully reversing chargebacks. Keep in mind that each bank may have its unique chargeback procedure, so it’s wise to research the specific bank you are in dispute with.


Beware of Chargeback Fraud

Surprisingly, Visa reports that up to 70% of chargebacks are fraudulent. The majority of these occur when customers claim they never received items they paid for, often referred to as ‘friendly fraud.’ The other type of fraud is committed using stolen credit or debit cards.

 

Implementing Chargeback Prevention Measures

These guidelines can help your business establish chargeback prevention measures to reduce the risk of chargebacks altogether.



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Chargebacks and Rolling Reserves

When it comes to managing chargebacks, understanding the role of rolling reserves is crucial for merchants. A rolling reserve is a specific percentage of a merchant’s daily credit card transactions that is held in reserve by the payment processor or acquiring bank. This reserve acts as a safety net to cover potential chargebacks or other unexpected financial liabilities. While it may temporarily tie up a portion of a merchant’s funds, it helps protect against the financial impact of chargebacks.

 

Rolling reserves are a prudent strategy to ensure that merchants can cover chargebacks without significant disruptions to their cash flow. By having a reserve in place, businesses can mitigate the risk associated with chargebacks and maintain their financial stability. It’s important for merchants to work with their payment processor or acquiring bank to understand the terms and conditions of their rolling reserve, ensuring that they are adequately prepared to address chargebacks while continuing to operate smoothly.



For Expert Advice on Chargebacks

If you need assistance with an existing chargeback claim or seek information on merchant services chargebacks, don’t hesitate to get in touch with our team of experts. We’re here to provide advice and support your efforts to avoid chargebacks for your business.

Managing Chargebacks Through a Third Party

In the complex landscape of chargebacks, managing these disputes can become even more challenging. This is where third-party services can prove invaluable. By partnering with a reputable chargeback management service, you can offload the burden of navigating these intricate processes. MAS offers tailored solutions and expert guidance to help your business not only minimise chargebacks but also efficiently manage them when they do occur.

 

A third-party chargeback management service can provide you with the expertise and resources needed to handle disputes effectively. Whether it’s handling the administrative side of chargebacks or offering insights on chargeback prevention, these services can significantly reduce the impact of chargebacks on your business. By entrusting your chargeback management to professionals, you can focus on what you do best—running your business—while ensuring that your financial health and reputation are safeguarded.

 

Don’t let chargebacks overwhelm your business. Consider the advantages of enlisting a third-party chargeback management service to help you navigate this challenging terrain and protect your business from the impact of chargebacks.



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FAQs About Chargebacks

Commonly Asked Questions
What is the chargeback scheme in the UK?
The chargeback scheme in the UK applies to transactions worth between £100 and £30 000. It allows customers to dispute transactions and be reimbursed by their bank or credit card company.
How long do customers have to claim a chargeback?
Customers typically have 120 days to claim a chargeback, but the time limit can vary based on the type of goods purchased.
How can I prevent chargebacks as a merchant?
To prevent chargebacks, consider using a recognisable trading name, invest in chargeback insurance, provide comprehensive information during the purchase process, set up a dedicated customer support team, and offer refunds when necessary.
What evidence do I need to dispute a chargeback?
To dispute a chargeback, you should have evidence, including tracking numbers, proof of refunds, communications with the purchaser, and order tracking updates.
What are chargeback fraud and friendly fraud?
Chargeback fraud often involves customers falsely claiming they didn’t receive items they purchased. Friendly fraud occurs when customers use their own cards for fraudulent chargebacks.
Are there chargeback fees for merchants?
Yes, there are chargeback fees for merchants, charged by payment gateways and merchant account providers each time a chargeback occurs.
How can MAS assist me in reducing chargebacks?
Merchant Advice Service (MAS) offers expert guidance and solutions to help your business minimise chargebacks and maintain its financial health and reputation.
Where can I find more informative content on related topics?
For more expert advice and informative content, visit our blog page, where you can explore a wide range of topics related to chargebacks and merchant services.

How Merchant Advice Service (MAS) Can Help

At Merchant Advice Service (MAS), we understand the importance of preventing chargebacks and helping your business thrive. Our experts are dedicated to offering guidance and solutions to keep your chargebacks to a minimum, ensuring the financial health and reputation of your business.

 

If you’re looking for ways to reduce chargebacks and want expert support, contact us today. We can provide tailored advice and strategies to safeguard your business from chargeback-related challenges. To learn more about how MAS can assist you, visit our Merchant Services Chargeback page.



Conclusion

Managing the number of chargebacks in your business is crucial for maintaining financial health and customer trust. When you dispute a charge, having compelling evidence is key to overturning a friendly fraud chargeback. Remember, each chargeback requested carries a specific chargeback reason code. Understanding these can help you better navigate the process.

 

Staying vigilant about your chargeback ratio is important. If a customer files a chargeback, it’s often due to confusion over goods or services received. Keeping clear communication with your card network and issuing bank can help mitigate these issues. And keeping a close eye on your chargeback ratio helps you understand the scale of the problem.

 

Consider strategies like rolling reserves and thorough documentation of transactions. This proactive approach ensures you have a safety net if an issuing bank raises a dispute. Working closely with your card issuer can provide insights into minimising chargebacks and enhancing transaction security.

 

Effective chargeback management involves a mix of strategic planning, understanding the nuances of card networks and banks, and adopting preventive measures. By prioritising these aspects, you can safeguard your business against unnecessary losses and maintain a strong reputation in the marketplace.

 

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Libby James

Libby James Co-founded Merchant Advice Service alongside David Bird in 2016. Her finance background, coupled with retail and customer service experience, gave Libby the drive to bring transparency and non-biased advice to the world of merchant services. Having come from the heavily regulated mortgage and insurance industry, Libby found it puzzling that other financial sectors lacked regulation and transparency leaving customers confused and unable to make informed decisions when it came to accepting card payments. This was soon to become Libby’s obsession!

With the help of some of the industry’s best, Libby began to research acquiring banks, complex terminology/regulation, and the problems customers experience within merchant services and payment gateway markets. She spent years on sourcing solutions for complex clients, which previously others were unable to assist with. Libby established relationships with brokers and banks which would soon form the cornerstone of Merchant Advice Service. As a result Libby has been featured in high-profile publications across the web.

Libby is proud to be the entrepreneur’s champion, supporting start-up businesses regularly. Her industry insights can often be found on LinkedIn where she provides free of charge advice and money saving pointers. It’s safe to say she has her finger on the pulse of everything card payments related.

Libby speaks of her experience in founding and running Merchant Advice Service…

‘Merchant Advice Service is one of my greatest achievements to date. We help business owners to overcome card processing issues which can become detrimental to their business. We assist SME’s in finding suitable card payments solutions, helping them create their vision. Each and every day is different, exciting and fore filling. As technology advances I can’t wait to see the way in which the merchant services market advances, and I’m pleased that our business will play a part in educating company owners along the way.’

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