What is a chargeback and how do I deal with them?

Occasionally, a cardholder will dispute a charge that appears on the monthly bankcard statement and/or it may be discovered that the proper bankcard acceptance and authorization procedures were not followed at the point of sale. If this happens, your bank or processor will notify you of the dispute and debit the amount from your settlement/deposit account. This is called a "chargeback."

Please note that not all of MasterCard’s and VISA’s chargeback reasons require the Issuer (cardholder's bank) to generate a retrieval request before initiating a chargeback.

How do I handle a chargeback?

You must handle the chargeback through your acquirer. When you receive a notification you will have 10 days to respond, or the chargeback will occur. You should read the reason for debiting your account on the form, and if it is incorrect you should immediately fax supporting documentation and the Notification of Chargeback to your acquiring institution. Supporting documentation demonstrate that the purchase did occur, and goods/services were provided in exchange. Usually, a copy of the sales draft is provided as proof for services. However, in the Internet environment it is a little more difficult to provide a sales draft. Sometimes your electronic log or a shipping draft will suffice.

If the issuing bank accepts your documentation, the chargeback will be reversed and the amount of the disputed transaction will be credited to your account. This credit is conditional. If the cardholder disputes the reversal a second chargeback may be initiated. In addition, if your acquirer has information to contradict your claim, or if your documentation does not support your case, the chargeback debit to your account will stand.

I issued a credit and I still received a chargeback, why?

In these cases for some reason the Issuer did not see the credit issued by the merchant. Sometimes the credit is issued after the chargeback was initiated and they ‘cross’. All you have to do is represent the item to your acquirer and it will be credited to your account.

How do I prevent chargebacks?

You may not be able to completely avoid chargebacks, but you may be able to minimize them. Make sure you keep accurate accounting of all sales and shipping logs (if you are shipping a product), and proof of delivery. You may also want to issue a confirmation email to each customer confirming the order and the purchase total. Maintain a copy of all such communications.

You can also minimize chargebacks by doing the following Make sure the name you advertise under and the business name you process through are the same or the processing name is in a prominent place on the receipt.

• Be sure to include a receipt in any product sent to the customer.

• Authorize every transaction and use the AVS if possible.

• Always verify the customer’s billing address.

• Provide a toll free number for support.

• Clearly state your refund policy on order forms.

• Memberships should allow for online cancellations.

• Never process (Factor) for someone else.