No matter how careful or attentive you are, it’s likely that your retail business will eventually have to deal with chargebacks.
In case you aren’t familiar, a chargeback is a formal request by a consumer to their bank to have their money returned after they’ve made a purchase. If the customer goes to you directly, this process will manifest as a return, but when customers go through their bank, there are potentially negative consequences for your business. How you choose to manage chargebacks could have a significant effect on the development and eventual success of your store.
Why Chargebacks Are Bad
Chargebacks may not seem like a big deal – and one or two certainly won’t threaten your business – but if you collect enough chargebacks, it could compromise your profitability and your reputation. In addition to losing the money you’ll refund to the customer, you’ll also be held responsible for paying a fee, usually in the neighborhood of $20 per claim. If a customer accuses your business of wrongdoing, the burden of proof is on you to show that the transaction was valid. And, if you get enough chargebacks, you could face serious penalties, including your entire account getting shut down.
Why Chargebacks Happen
Let’s start by looking at the main reason customers file chargebacks in the first place:
- Some customers will issue a chargeback if they’re unhappy with their purchase. Most of the time, a customer will attempt to return the product first, but if they fail, or if the process is too complex, they may turn to a chargeback.
- Missing goods or services. A customer will also file a chargeback if they never received the products or services they paid for. This is mostly preventable.
- In some cases, a customer will file a chargeback because it’s a case of fraud; they never approved the transaction.
How to Appropriately Manage Chargebacks
So, what can you do to manage your chargebacks more efficiently?
- Keep your customer proactively informed. One of your best strategies is to keep all your customers proactively and fully informed. Make sure you include all the relevant information on the products and services available for purchase in your store or on your website, including accurate images of the products your customers can expect. When customers have ample information when buying things, they’re far less likely to be dissatisfied with their received goods.
- Track and document all your transactions. It’s also a good idea to track and document all your transactions – especially ones that involve a credit card. Chances are you already have a system that does this automatically, but make sure your system logs all information accurately and makes it easy to search for. This will make it easier to resolve disputes, and may provide crucial information if you ever need to dispute the legitimacy of a customer’s chargeback.
- Provide the best possible customer service. Understand that not all your customers are going to be happy with their purchases, and work to provide the best possible customer service to them. Giving customers an easy, straightforward way to request and process a return will decrease their likelihood of going to the bank directly.
- Resolve disputes quickly. When facing a chargeback, attempt to resolve the dispute as soon as possible. In most cases, issuing a full refund is the fastest and easiest way to close the case. If you suspect fraud or have documented evidence that the transaction was legitimate, only open the dispute if you feel you have persuasive evidence to the contrary.
- Choose the right merchant service provider. You have many choices when it comes to merchant services, and each one handles chargebacks a little differently. You may see different fees or different processes, each of which is advantageous in different ways. Your choice in providers will have a powerful effect on how manageable your chargebacks become.
- Pay attention to the nature of complaints. If you receive multiple chargebacks, pay attention to the patterns in the nature of the complaints you receive. Are customers consistently dissatisfied with the sizing or fit of your products? If so, you may need to adjust your QA process or make more of an effort to inform customers about what they’re buying.
- Learn from your mistakes. Finally, be prepared to make some mistakes as you navigate the world of chargebacks, but always be willing to learn from them. You’ll get better as time goes on, so long as you update your processes and policies accordingly.
Chargebacks are a natural part of retail management, but with these strategies, you can prevent them from becoming problematic. As long as you remain proactive, take chargebacks seriously, and keep improving your processes, they shouldn’t present a threat to your business.
About the writer: Anna Johansson is a freelance writer, researcher, and business consultant. A columnist for Entrepreneur.com, Forbes.com and more, Anna specializes in entrepreneurship, technology, and social media trends. Follow her on Twitter @Number1AnnaJo and LinkedIn.
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