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What can you do to prevent and manage the occurrence of Chargebacks and Payment Disputes

Jan 17, 2023

Sometimes, when running an online store, you make a sale and then receive a dispute notification. It usually occurs weeks sometimes even months later the purchase. You'll have administrative issues to handle and the possibility of losing money generated by the sale, and you'll have less time for managing your business.

Though this may be not a frequent occurrence If it occurs regularly significant partners such as credit card companies could start to charge fines, enforce more stringent rules or close ties to your business.

The good news is the proactive approach to avoid disputes and handle them when they do occur will keep your store clear from headaches. Even better news? You can learn all you require to know from this article.

Table of contents

What are chargebacks or disputes?

A payment dispute happens whenever a customer contacts their credit card provider to contest a charge in their bill. Credit card companies take these claims seriously and, if they determine that the reason to dispute is legitimate and they'll issue a pro forma credit on the customer's account until the issue is settled. It's also known as a chargeback.

How come disputes and chargebacks happen?

Two main reasons for disputes over payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll dive deeper into both in a little bit more time.

From the first look, you would think you'd enjoy more control over this one than the other. The truth is, you do have control over both, as you'll see.

The reason why merchants must address dispute

Payday debts aren't something one can simply ignore and hope they go out of your life. They aren't going to go away. Ignoring them will just create problems that can impact the long-term viability of your business.

Card networks track your rate of dispute (the proportion of transactions that are confirmed in comparison to those that are disputed) and could charge more charges or impose penalties if yours is unfavorable.

What to do when you encounter a dispute with a credit card

This is what you should do when you receive a payment dispute notice:

Respond promptly

If the card network initiates an inquiry, it is imperative to respond promptly. If you use Payments, you'll be notified of any disputes via email and an inbox notification within your dashboard.

In the absence of a response in the shortest amount of time leads them to presume you're not planning to dispute the issue. Every credit card has its specific timeframes for when a dispute inquiry remains open. You'll need to carefully gather evidence while submitting said evidence before the timeframe expires.

If you're using Payments, you'll be able to log in easily your store's dashboard to respond to the issue.

dispute response in Payments

Provide documentation

Then, you must provide proof that is clear and convincing about the transaction in question. This should include the credit card number (or the truncated version) as well as the date, amount and date of the transaction, as well as any order details or proof of delivery in your file.

The information they gather helps them rule out the possibility of fraud, and also ensure that all employees have the same understanding of the issue.

Submit requested evidence

In addition to the basic documents, the network may ask for additional information about the transaction. Even if they do not require it, it's best to provide the required documentation anyway. Taking the time to gather the necessary documentation is time well spent however, make sure that you've got everything in order and sent it before the deadline.

The kind of proof the evidence you submit will vary based upon the type of dispute that you're having. There are at the very least seven different types of dispute over payment:

  1. It 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 your company doesn't take action to charges?

The concept of chargebacks may seem daunting or complicated to handle. Yet, they are an essential part of running a store and following some simple steps will save you lots of anxiety. The credit card industry still wants for you to achieve success in protecting their clients, so work within the rules to ensure your good name.

If you opt to completely disregard chargebacks however the situation can get complicated. Here's the progression of ignored or not checked chargebacks:

First, you lose the income and profit from the sale, and you must pay a fee plus the loss.

If your disputes start to accumulate and you fail to manage them the card company may impose fines or higher fees until you bring the chargeback percentage to a lower level. If you continue to have issues and you are unable to access your sales, they could block you to accessing certain portions of your sales revenue. Finally, they can eventually cease allowing you to accept payment, as well as mark your account as risky.

This might stop the other card companies from wanting to do business with your company. If you aren't able to accept transactions online, you won't be able to manage your business properly.

It's true that this is a rare instance. This is completely preventable if you follow the correct steps.

What is a threshold for dispute?

The threshold for dispute, also known as the the threshold for chargeback is the method that network card companies use to assist them decide when to increase monitoring and penalties on businesses or merchants in order to decrease their rate of dispute.

What is the rate of dispute?

The "dispute ratio" is the amount of disputes per transaction processed over the time frame, such as one week. For example, if there were 500 transactions processed during the course of a week, and only five of them were disputed and five were not, you'd have an average of 1% for the disputation rate for the week.

It is different from "dispute activity' that measures the percent of disputes in an arbitrary timeframe regardless of the date for processing.

The difference is that some dispute resolution is not awaited until weeks or months following the purchase. The process that disputes includes. It is possible to have five disputes in one week, however if three were related to purchases earlier in the week, your rate of disputes would include the two from that week, but your dispute activity would include the entire five. Here is more on the subject from Stripe on measuring disputes.

chart of dispute activity

Credit card networks typically use the activity of disputes to determine their levels of dispute. Also, every card company is governed by its own set of thresholds. The threshold could be calculated based on disputes activity and volume of disputes or, in the case of more frequent disputes, both.

In particular, Visa will increase their charges against businesses with at least 100 chargebacks in a month and 0.9 percentage of disputes. But Mastercard's dispute threshold begins at 1.5%.

The volume threshold is useful for small businesses, because when you're only receiving 50 installments in one month, and one is disputed and you're at a two percent penalty. This means that the threshold for volume keeps small businesses from being subject to greater penalties.

If you're using the Payments platform and are unsure of the best way to handle dispute resolution, don't hesitate to reach out to the Customer Support Team for help.

What can I do to reduce the number of disputes that my store receives?

If you are now aware of how disputes are made Here are some ways to help lower the number of disputes you have to resolve.

1. Use a clear bank statement descriptor

An accurate statement of description will inform your customers of the place they purchased an item. It could immediately reduce claims resulting from charges that are not recognized. The company will see your details and keep in mind that it's a legitimate purchase they intended to purchase.

descriptor statement examples

And if a customer notices the charge on their bill and wonders about the charge and wants to contact you directly rather than file the dispute to their credit card company. In this case, you can resolve it with the credit card company.

2. Add company details on transaction receipts

Similar to the bank's descriptor, providing the customer easy-to-read, accurate company information on their receipts increases chances that they'll contact you in the event of a concern instead of their credit company.

Incorporate your company's name address, phone number, physical address as well as your logo, site along with a brief message on the customer service. Be sure to not interfere with the transaction details that appear on your receipt.

3. Response to complaints from customers promptly and seek solutions

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

When a client complains about the product's quality, its condition, damages in the delivery process, or any other issues, you should listen to them, and then work together to resolve the issue and avoid a chargeback.

4. Initiate contact before fulfilling suspicious orders

This is one of your greatest tools you can use to fight fraud. Being a smart business proprietor, you need to review your orders for any indication of risk or fraud.

If you receive no answer, even after multiple attempts, or if the telephone number is incorrect, you may want to consider refunding your order , but not shipping it.

Most other payment processors offer the possibility of a fraud detection measure, however they're not always as easy to use. With Payments, it's right there next to each transaction. You don't have to be waiting for your credit card company for the duration of your day.

5. Get the proof of delivery

Whenever possible, this is a solid piece of evidence you can use in cases where a customer claims the order never arrived. For instance, tracking the shipment specifics, needing a signature upon delivery or taking a photograph of the delivered item or item, etc...

6. State clearly the policies

Your policy regarding returns, refunds and cancellations affect your customers. to customers. Include them on your invoices or receipts. Include them on your most important website pages, such as your checkout page. Include them on store displays. You're even more effective when you have the person who is using your card accept or sign a declaration the fact that they accept the conditions.

7. Use accurate product descriptions

The descriptions of the product must match the actual product. When a cardholder receives something which isn't the item they believed they purchased The cardholder may dispute the charge because they'll assume that you shipped them the incorrect product.

Attention to detail is crucial. Don't skimp.

8. Take out items that are no longer in stock or discontinued.

Take items off your online store that are no longer accessible so that buyers don't need to purchase items they will not be able to receive. Consider doing the same for items not in stock, provided you're able to quickly and easily put an "out of stock' image on your product's pages as well as keep track of it as the status alters.

out of stock settings in

9. Be cautious with international orders

Certain kinds of frauds are an unfortunate reality in our day-to-day world, and orders from some regions may pose a higher chance of being a victim. It helps to choose an option that has fraud prevention to minimize the risk of fraud, for instance Payments.

10. Gather as much information from customers as is possible

Not every business needs to gather shipping details however, it is a good idea to collect it. It can be used to verify that the cardholder is who they say they are.

For every purchase, you will need to know the following details:

  • Name of the customer
  • Customer email
  • CVC number printed on the credit card
  • The full billing address as well as the postcode
  • Address for shipping, in the event that it is not the same as billing

11. Tracking information for your shipment

It is important to be prompt when you do this. When a client places an order and receives the email with tracker details as soon as is possible. After that, they should be provided with regular updates. This is a good way to prove when a client claims that it never came.

Strengthen your defenses against fraudulent charges

Do you want to enhance your detection of risky transactions? It's only one advantage of using Payments, which helps online businesses accept payments and protect their image and boost profit.