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So you got a chargeback. Now what?

May 18, 2018 | 5 minutes read | Payments

The dreaded chargeback. It’s the bogeyman of the small business world. You found a new customer, made the sale…but the story didn’t end there. You got a chargeback notification, and you’re not sure what to do.

In this article, I’ll walk you through the different reasons chargebacks can happen, and what you need to do in each situation to fight unfair chargebacks and protect your business.

    Wait, what is a chargeback?

    A chargeback is the name given by the card networks to the situation where a customer wants to formally dispute a credit card transaction. Credit card companies have this process to protect consumers from unauthorized transactions on their cards from credit card theft or scams by fraudulent companies.

    That being said, sometimes customers dispute a transaction unfairly. Some chargebacks are unjustified, or, more often, there’s a difference of opinion between the cardholder and merchant on the quality of the work, or whether it was fully completed. When this happens, you have to come to the table prepared to prove that the transaction was fair and defend your side of the disagreement, or else you’ll have to return the money to the customer—a costly mistake.

    How should I handle a chargeback?

    Chargebacks happen for a bunch of different reasons. To fight a chargeback successfully, you’ll need to understand the specific reason behind it so that you can provide the right kind of evidence to back up your claims. Doing that successfully means taking some preventative measures, namely, ensuring you’re getting agreements in writing and documenting changes.

    Here are some common reasons behind customer chargebacks, and what you’ll need for each case.

    The customer says they didn’t receive your product or service

    Sometimes a customer will claim they never received your product, or that you didn’t complete the service you agreed on. Assuming that you’re not operating a fraudulent business yourself, this is known as “cyber shoplifting.” The customer received the product or service, but they’re claiming they didn’t so they can get their money back.

    How to win with this chargeback

    To fight this type of chargeback, you’ll need to prove that you actually did provide the product or service. You can do this by showing your email communications back-and-forth with the customer, shipping notices and tracking slips, signed proof of delivery, documents confirming progress, and a copy of the contract you had in place with the customer.

    Preventing this chargeback

    Make sure you keep good records every step of the way with your sales. Put a contract in place that clearly lays out what you will and won’t provide as part of the agreement if you’re offering services on a longer-term project. Follow up on any conversation with an email that summarizes what you talked about and ask for them to email back their confirmation. Save all communications and documents that prove items were purchased and shipped.

    The customer says they cancelled a recurring payment

    This type of chargeback happens when a customer has agreed to purchase a service or package with multiple payments over a period of time (think subscription services, like fitness classes or monthly delivery boxes), and then changes their mind.

    How to win with this chargeback

    To beat this chargeback, you’ll need to prove that the customer agreed to payments over a period of time and that the disputed transaction (or series of transactions) happened within that pre-authorized time period. You can do that with email communications that show the customer authorized the payment schedule, or with a recurring payment contract.

    Preventing this chargeback

    For any type of recurring payment or subscription service, you’ll need to get the agreement with the customer in writing. Make sure the payment schedule is clearly outlined, along with what happens when they cancel (i.e. if notice has to be given by a certain date). If you don’t allow cancellations, or a penalty is needed, make sure that’s clear in the contract and has been acknowledged by the cardholder up front.

    The customer says they were charged twice for the same product or service

    If you had multiple transactions with the same customer for different products or services of the same price, the customer might try to claim that you charged them twice for the same thing.

    How to win with this chargeback

    For this kind of chargeback, you’ll need to show that each transaction was for something different. You can do this with invoices and contracts that clearly outline what each transaction was for, and by showing the customer’s billing statement and transaction history.

    Preventing this chargeback

    Make sure to include adequate detail in all of your customer invoices. That way, you can show that even if the transactions are for the same amount, each invoice covers a different purchase.

    The customer says the product or service is not as described

    Another kind of chargeback that can happen is where the customer says the product or service you provided wasn’t what you advertised, or what you both previously agreed on.

    How to win with this chargeback

    To fight this chargeback you’ll need to prove that you did provide the same product or service that you agreed to provide. The best way to do this is through a combination of contracts, photos, email communications, and invoices. This can be harder to prove, so the more evidence you can provide the better.

    Preventing this chargeback

    Make sure you provide good photos and descriptions of products that you’re selling, and don’t digitally alter or enhance them to the point where you might be accused of false advertising. If you’re providing a service, have a detailed contract in place to outline what’s included and what’s not included, as well as what you’re willing and not willing to guarantee (i.e., the results of your personal training client’s weight loss). If you have a large project with various payment milestones, be sure to capture a signature from your client after each milestone verifying that the work completed so far is as described.

    The customer says they didn’t authorize the payment or that it’s fraud

    This kind of chargeback can happen if the customer is a different person than the actual cardholder. The cardholder might not be aware of the transaction (i.e., if it’s a company credit card and there was a lack of communication between colleagues).

    How to win with this chargeback

    You’ll need to tackle this chargeback by showing that you had the proper authorization from the customer to charge their card. Try to connect your customer to the cardholder to help bridge the communication gap. You’ll also want to be ready with any contracts, email communications, credit card authorization form, and other evidence that proves you had permission to charge the card.

    Preventing this chargeback

    If you’re processing a transaction where the cardholder’s name is different from the customer, make sure you get the actual cardholder to authorize the transaction, along with their address, email and phone number.

    The customer says they don’t recognize the transaction

    This kind of chargeback can happen when what shows up on the customer’s bank or credit card statement doesn’t match the name of your company (e.g., there’s a parent company name that gets used for financial purposes). It can also happen if they simply forgot they made the purchase.

    How to win this chargeback

    For this type of chargeback, you’ll need to show that your customer made the purchase legitimately. Sometimes all that’s needed is to refresh their memory about the purchase.

    Preventing this chargeback

    This transaction can’t always be prevented, but you can clear up some misunderstandings by telling the customer up-front if the company name that will appear on their bank statement will be different from the name they know.

    All in all, chargebacks don’t have to be such a scary thing. As long as you’re running an ethical business and you’re keeping good records like we’ve laid out in this post, you can come out on top when you do encounter a chargeback.

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