How To Prevent Chargebacks

Chargebacks can be very costly to businesses. Lost sales, in addition to the cost of the sale (shipping, handling) and chargeback fees can add up to more than the sale itself. While a customer might have a legitimate claim if an item that they ordered was damaged or an error was made, many chargebacks can be avoided.

Provide customers with good information

Two things that merchants can do to avoid chargebacks are:

  • Provide a detailed description of the product that is being sold. If appropriate, also add details about the limitations of a product or things that it cannot do. Many customers will file a dispute if they receive a product that does not meet their expectations. The best way to avoid this is to be as clear as possible about your product; adding pictures can also help customers visualize a product and perhaps they will avoid purchasing an item that does not meet their expectations.
  • Providing good customer service can also prevent chargebacks in two ways. First, customers may contact you to get product details and ask questions about a product before ordering. Second, when an item arrives and it is not as expected, they can easily contact you to resolve an issue rather than filing a dispute with their credit card company.

Be clear on shipping and other fees

A frequent point of contention with customers is that they didn’t know that were being charged a fee, or that shipping fees were more than they expected. Once again, provide clear information on websites and during checkout to ensure that there are no surprises. Similarly, communicating with customers about any shipping delays will help avoid a disputed transaction.

User accounts

Fraud is a serious issue and often the reason behind a chargeback. Asking customers to register for your site and confirming that they are who they say they are can reduce chargebacks due to fraud. Another best practice is to have separate fields for shipping address and billing address, which makes it easier to verify that a credit card actually belongs to the person making the purchase. There are address verification systems that can be built into shopping carts that you may consider as an added layer of security to avoid fraudulent transactions.

Set rules to flag any high-risk transactions

Merchants can set their own rules that might help them identify higher-risk transactions. For example, a merchant might flag a transaction when multiple identical items are ordered (if this is not typical of a merchant’s business). The point of origin of a purchase may also be a red flag; perhaps the customer’s IP address is linked to a high-risk country but the credit card is from a U.S. bank.

Employing some of these best practices can provide merchants with the peace of mind that they are taking every precaution to reduce their number of chargebacks.