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

Jan 17, 2023

In some cases, when you operate an online business, you make a sale and then receive a demand notice. These usually happen weeks - sometimes even months later the sale. Now you've got administrative work to handle and the possibility of losing the revenue from the sale, and you'll have less time for running your company.

Though this may be an infrequent event, if it happens on a regular basis major partners like companies that deal with credit cards could begin to fine you, or impose stricter rules, or close ties to your business.

The good news is the proactive approach to prevent disputes and manage the situation when it does happen will keep your store clear of headaches. Even better news? There is everything you need to know about this in this post.

Table of Contents

What exactly are dispute or chargebacks?

Payment disputes can occur whenever a customer contacts the credit card company they use to challenge a charge that was made in their bill. Credit card companies will take concerns seriously, and in the event that they determine that the reason of the dispute is legitimate and they'll issue a pro forma credit on the customer's account until the issue is settled. This can also be referred to as a chargeback.

What causes chargebacks and dispute occur?

There are two primary sources of disputes regarding payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

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

At first glance one might think that you have much more control over the first than you do the other. The truth is, there is some degree of control on both, which you're about to discover.

The reason why merchants must react to disputes

Payment disputes aren't something one can simply leave them unattended and hope that they will go away. They won't. Ignoring them will just create problems that will affect the longevity of your shop.

The card networks monitor your rate of dispute (the proportion of transactions that are confirmed in comparison to those that are disputed) and may charge higher costs or penalize you when your situation isn't favorable.

What do you do if receive a payment dispute

This is what you should do when you get a notice of a payment dispute Notice of a payment dispute:

React promptly

If the card network initiates an inquiry, you should respond immediately. If you're using Payments and you're a member of the Payments network, you'll be informed of any potential disputes by mail and also an email notification within the dashboard.

If you don't respond within a fairly short amount of time makes them assume that you aren't planning to contest the dispute. Every card company has its specific timeframes for when the dispute investigation is open. You'll need to be careful in gathering evidence prior to making sure you submit the evidence prior to when the period ends.

If you're using PayPal, you'll be able to log in easily the store's dashboard and respond to the dispute.

dispute response in Payments

Provide documentation

Then, you must provide solid and unambiguous proof of the particular transaction. It should contain the number of your credit card (or the reduced version) as well as the date, amount and date of the transaction as well as any details of the purchase or proof of delivery that you keep stored.

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

Submit requested evidence

Apart from the normal documents, the network could request additional details regarding the transaction. And even if they don't require it, it's best to provide the required documentation anyway. Taking the time to gather all the required documentation will be well-spent, but make sure you've gathered and submitted everything by the time the deadline is.

The type of evidence you send will depend on the kind of payment dispute you're facing. There are at least seven different types of dispute over payment:

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

What happens if you fail to respond to charges?

Chargebacks might seem intimidating or complicated to handle. However, it's an important part of running a store by following a few simple steps can save you a lot of stress. Credit card companies still want you to be successful while protecting their users, so work within the process to maintain a solid reputation.

If you decide to completely avoid chargebacks, things can become difficult. This is the sequence of unchecked or unchecked chargebacks:

In the beginning, you'll lose profit and the revenue from the sale. You also have to be charged a cost plus the loss.

After that, if your disputes start to accumulate and you don't manage them Your card provider could levy more fines and additional fees until you can bring the chargeback percentage to a lower level. If your issue persists, you might be restricted in accessing a portion of your revenue from sales. Finally, they can eventually cease allowing you to accept payment, as well as mark your account as high-risk.

This could keep other card networks from doing business with the company. If you aren't able to accept payment online, it's impossible to effectively run your business.

Of course, this is a rare instance. This is completely preventable if you make the proper steps.

What is a threshold of dispute?

The threshold for dispute, also known as the the threshold for chargeback, is what the card networks employ to help in deciding when to raise monitoring and penalities on the business or a company in order to decrease the rate of disputes.

What is the rate of dispute?

The "dispute ratio" is the amount of disputes for all transactions processed in a given time period, such as one week. In other words, if you have 500 transactions processed over the course of a week, and only five of those got disputed and five were not, you'd have an average of 1% for the dispute rate for that week.

This is distinct from 'dispute activity' that measures the proportion of disputes within an arbitrary timeframe regardless of the date for processing.

It's the difference that disputes don't happen until weeks or months after the purchase. The process that disputes encompasses. You might get five disputes in one week, but if 3 of those relate to purchases which were made before that week, then your dispute rate would only be the two that occurred during the week prior, but your dispute activity would include the entire five. This is more information about the work of Stripe about calculating the number of disputes.

chart of dispute activity

The credit card companies typically utilize the activity of disputes to determine their levels of dispute. Each card network is governed by its own set of thresholds. The threshold can be determined calculated based on disputes activity and volume of disputes, or more commonly the two.

As an example, Visa will increase their penalty against businesses that have at least 100 chargebacks the course of a month. They will also charge 0.9 percentage of disputing activity. But Mastercard's dispute threshold begins at 1.5%.

The volume threshold is useful for small businesses, because when you're only receiving 50 payments in a given month and only one is disputed, you're already at a 2percent rate. This means that the threshold for volume keeps smaller businesses away from the higher penalties.

If you're using the Payments platform and have questions about how to best handle disputes, you can always contact the customer support team for assistance.

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

Now that you understand how disputes are made, here are some strategies to help reduce your dispute rate.

1. Use a clear bank statement descriptor

An accurate statement of description will inform your customers of the place they purchased the item. It could immediately reduce disputes caused by unrecognized charges. They'll see your information and keep in mind that the purchase was legitimate and wanted to purchase.

descriptor statement examples

And if a customer finds this charge on their account and is puzzled by the charge and wants to contact us directly instead of filing an appeal with their credit card company. In this case, you can resolve it by talking to the company.

2. Include company information on the transaction receipts

The same reasons apply to the bank's descriptor, providing your customer clear, easy-to read data about the company on their receipt will increase the chance that they'll call you when they have a problem and not the credit business.

Include the name of your business along with your location, address, contact details as well as your logo, site, and a message about the customer service. Be sure to not interfere with the transaction details on the receipt.

3. Respond to customer complaints promptly and look for solutions

Be aware that there are at minimum seven causes of chargebacks. Many of them can be addressed prior to getting to the dispute stage by offering good customer support.

If someone complains about a product, its quality, damage in the delivery process, or any other issues, you should listen to them and collaborate together to resolve the issue without the possibility of a chargeback.

4. Contact the company before executing an order that appears to be suspicious.

It's one of the most effective tools for preventing fraud. As a savvy business proprietor, you need to examine your purchases in the event of any sign of fraud or danger.

If you don't receive a answer, even after multiple attempts, or if the phone number appears to be invalid, consider refunding the order , but not shipping it.

Most other payment processors offer an element of fraud-detection measurement, but they'ren't always as easy to use. With Payments, it's right on top of each transaction. There's no need to sit in a waiting room at your credit card provider for half the day.

5. You must provide confirmation of delivery

If you can, this will be an excellent piece of proof that you could use in which a buyer claims that their item never came. Examples include, shipment tracking specifics, needing an order to be signed upon delivery or taking a photograph of the delivered item or item, etc...

6. Clearly state policies

Your policy regarding returns, refunds and cancellations matter to your customers. Include them on your invoices or receipts. Include them on your most important website webpages, like your checkout page. Display them in store display. Even better, when you get the cardholder to accept or sign a declaration that they agree to your terms.

7. Use accurate product descriptions

The descriptions of the product must match the actual product. If a customer receives a product which isn't what they thought they ordered They may challenge the charges because they'll believe that you shipped them the incorrect item.

Attention to detail is crucial. Don't skimp.

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

Eliminate items from your store that aren't available so customers can't order an item they'll never get. You might consider doing the same for items that are out of stock, but only if you can easily and accurately include an 'out of stock' graphic on your product's pages as well as keep track of this as status alters.

out of stock settings in

9. Be cautious with international orders

Certain kinds of frauds can be a reality the present day, and orders from some areas could be at a greater chance of being a victim. It's best to pick a payment solution that includes fraud prevention to minimize the chance of this happening, like Payments.

10. As much information about your customers as you can

Not every business needs to gather shipping details However, you should collect it nonetheless. It helps confirm that a cardholder is who they claim to be.

Each time you make a transaction, you need these details:

  • Customer name
  • Customer email
  • CVC number that appears on the credit 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

Be prompt with the delivery of this. Once a customer has placed an order and receives an email with the tracking info as soon as is possible. Following that, they will get periodic notifications. This can be used as proof if a customer claims the product never arrived.

Strengthen your defenses against fraudulent charges

Want to improve the detection of fraud? It's only one advantage of using Payments, which helps online businesses accept payments, preserve their reputation, and boost profits.