In 1974, the Fair Credit and Billing Act was created in the U.S. Its purpose was to protect consumers from unauthorized credit card charges by giving them the ability to dispute charges and initiate a chargeback.
What Are Chargebacks?
Chargebacks are similar to refunds in that they both return money to the credit card owner’s account. With a refund, the merchant reverses the transaction by taking back the returned item and issuing a credit to the customer’s card. With a chargeback, the consumer goes right to the bank with their request. The bank issues a refund to the consumer, and then reverses the transaction with the merchant.
This can hurt a small business in many ways. It takes away the opportunity for the business to resolve the issues with a customer directly. And if the merchandise is never returned, a merchant cannot get it back to resell it or get credit from the manufacturer. It’s losing money unexpectedly, and essentially giving away a product or service for free.
4 Steps To Avoid Chargebacks
It’s important for every business to take steps to avoid chargebacks at all costs. Though some will continue to occur without recourse, here are 4 things your business can do to limit them
1) Create a clear return policy. Display your return policy very clearly in the store, on your website, and on your customer receipts. Document that the customer acknowledged the policy at the time of the transaction by having them sign a contract or receipt. If your product is sold online, have them check a box for acknowledgment. Save any signed copies you have for future reference.
2) Handle customer service issues ASAP. Take advantage of any chargeback notifications you receive from your credit card company that tell you when a customer is disputing a charge. If a customer is dissatisfied with your service, or has another issue, get in touch with them immediately to personally resolve the issue before a chargeback can be completed.
3) Enhance security protocols. With identity theft running rampant, a chargeback can occur due to a stolen credit card. Update your terminals to accept EMV cards to help prevent fraud. If your business accepts online payments, require customers to include the CVV number from the back of their credit card along with their billing zip code. Be sure that the billing and shipping address are the same, as this can sometimes indicate fraud.
4) Know what you know. Red flags that indicate possible credit fraud can include purchases in extraordinarily high amounts. Pay attention to customer behaviors. If your online floral shop encounters a 10,000 dollar transaction, you should hold off until you can investigate further. Contact the customer directly if you have any suspicions. And always remember to trust your instincts. If something seems amiss, it probably is.