Creative tips and tricks

How do you manage and prevent Payment Disputes or Chargebacks

Jan 17, 2023

When you run an online business when you sell something, however, you later get a dispute notification. These usually happen weeks - or even months - after the sale. There's now administrative tasks to handle, the risk of losing money generated by the sale, and less time to focus on managing your company.

While this is usually an infrequent event If it occurs on a regular basis significant partners such as credit card companies might begin to levy fines, impose stricter rules, or close ties to your business.

Good news is having a plan in place to avoid disputes and handle the situation when it does happen keeps your shop free of any aches. Even better news? There is everything you need to know in this article.

Table of contents

What are chargebacks or disputes?

A payment dispute happens whenever a customer contacts their credit card provider to challenge a charge that was made on their bill. Credit card companies take these complaints seriously, and if they find that the motive for the dispute is valid, they'll provide a provisional credit to the customer's account while the dispute is resolved. This is also known as a chargeback.

What causes chargebacks and dispute happen?

There are two primary reasons for disputes over payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

The two will be discussed in greater detail a bit later.

From the first look it would appear that you enjoy more control over the first one than the other. However, the truth is that there is some degree of control on both of them, as you're about to discover.

Why merchants need to react to dispute

Payment disputes aren't something you just can ignore and hope they go out of your life. They aren't going to go away. Ignoring them will just cause problems to escalate that could affect the viability of your business.

The card networks monitor your dispute rate (the ratio of verified transactions to disputed ones) and can charge you higher costs or penalize you in the event that your rate is not 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 network of your credit card starts with an inquiry it is imperative to respond promptly. If you're using Pays and you're a member of the Payments network, you'll be informed of any disputes via emails and an inbox message within your account dashboard.

If you don't respond within a fairly short amount of time makes them presume you're not planning to contest the dispute. Every card company has its specific timeframes for when the dispute investigation is open. However, you'll need to carefully gather evidence while making sure you submit the evidence prior to when the period runs out.

If you're using Payments you'll be able to log in easily the dashboard of your store to reply to the dispute.

dispute response in Payments

Provide documentation

In the next step, give solid and unambiguous proof of the transaction in question. This should include the credit card number (or the reduced version) along with the date and value of the transaction, and the order information or evidence of delivery you have in your file.

The information they gather will allow them to eliminate any fraud possibilities, and ensures that everyone has the same knowledge of the issue.

Submit requested evidence

Along with the standard documentation, the card network might ask for more information concerning the transaction. If they don't need it, you must submit your documentation regardless. The time spent gathering all of the requested documentation will be well-spent however, make sure that you've submitted all the information before the deadline.

The kind of proof you send will depend on the type of payment dispute that you're having. There are at the very least seven types of payment disputes:

  1. It wasn't processed.
  2. Multiple charges
  3. Fraudulent charges
  4. Charges that are not recognized
  5. The product was not delivered
  6. Product unacceptable
  7. Subscription canceled

What happens if your company doesn't take action to charges?

The concept of chargebacks may seem daunting or difficult to deal with. But, they're an essential aspect of managing a business by following a few simple steps can save you a lot of stress. The credit card industry still wants your business to succeed in protecting their clients so you must follow the rules to ensure a solid reputation.

If you choose to totally avoid chargebacks it can be difficult. The following is the process of ignoring or unchecked chargebacks

First, you lose the income and profit from the sale. You also have to be charged a cost plus the loss.

In the future, if complaints start to pile up and you aren't able to manage them Your card provider might impose more fines and more fees until you get the chargeback percentage to a lower level. If your issue persists then you could be barred to accessing certain portions of your revenue from sales. Finally, they can eventually end your ability to accept payments, and mark your account as high risk.

It could stop the other card companies from doing business with your company. In addition, if you don't allow payment online, it's impossible to effectively run your business.

This, of course, is not a typical situation. You can completely avoid it if make the proper actions.

What is a threshold for dispute?

The threshold of dispute, or the chargeback threshold, is what card networks use to help in deciding when to raise monitoring and penalities on the business or a company in order to decrease their rate of dispute.

What's the dispute rate?

The "dispute ratio" is the amount of disputes that are disputed for all transactions processed in a given time period like a week. For example, if there were 500 transactions processed during one week, and 5 percent of them were challenged that would give you an average of 1% for the dispute rate for that week.

This differs from "dispute activity,' which measures the proportion of disputes within an arbitrary timeframe, regardless of processing date.

The difference is that some dispute resolution is not awaited for a period of time following the purchase. The process that disputes incorporates. It is possible to have five disputes during a single week, but if three were related to purchases which were made before that week, then the rate of dispute would include the two from the week prior, but your activity in dispute would be all five. This is more information on the subject from Stripe on measuring the number of disputes.

chart of dispute activity

Credit card networks typically use the activity of disputes to determine their dispute thresholds. Also, every card company has its own threshold. The threshold could be calculated based on disputes activity and volume of disputes, or more commonly, both.

As an example, Visa will increase their penalties against a business with at least 100 chargebacks one month, and 0.9 percent disputes. However, Mastercard's threshold for disputes starts at 1.5 1.5%.

The volume threshold is useful to small-sized businesses because even if you receive only 50 payments in a given month, and one gets denied and you're at a 2percent rate. This means that the threshold for volume keeps smaller businesses away from the higher penalties.

If you're using Pays and you have any questions regarding how to best handle disputes, you can always reach out to the Customer Support Team for help.

How can I lower the number of disputes that my store receives?

If you are now aware of the nature of disputes, here are some strategies to lower the number of disputes you have to resolve.

1. Use a clear bank statement descriptor

An explicit statement description informs your customers of the place they purchased the product. It can immediately help in resolving claims resulting from charges that are not recognized. Your information will be visible to them and they'll keep in mind that it's a legitimate purchase they intended to purchase.

descriptor statement examples

In the event that a consumer sees this on their statement and is puzzled by the charge, they may call your number directly, rather than filing a dispute with their credit card company, and you may be able to resolve the matter by talking to them.

2. Put company info on transactions receipts

The same reasons apply to the bank's descriptor, providing the customer easy-to-read, accurate company information on their receipt increases the likelihood that they'll phone you when they have a problem and not the credit card company.

Include the name of your business, location, contact information including logo, website address along with a brief message on customer service. Make sure that this does not alter the information about the transaction that appear on your receipt.

3. Resolve customer complaints quickly and find solutions

Keep in mind that there are at most seven possible causes for chargebacks. A lot of these can be solved prior to even reaching the dispute phase by offering good customer support.

When a client complains about a product, its quality, damage in the delivery process, or any other aspects, listen to them and collaborate together with them to fix the problem and avoid charging back.

4. Initiate contact before fulfilling suspicious orders

This is one of your greatest tools you can use to fight fraud. As a knowledgeable business proprietor, you need to review your orders to identify any signs of risk or fraud.

If you do not receive any answer, even after multiple attempts, or if the phone number appears to be not valid, think about refunding the order , but not shipping it.

Most other payment processors offer the possibility of a fraud detection measurement, but they'ren't all that user-friendly. When you use Payments, the metric is there next to each transaction. It's not necessary to wait in a waiting room for your credit card company for half the day.

5. You must provide proof of delivery

When possible, this can be an excellent piece of proof to use in which a buyer claims that their delivery was not made. For instance, tracking the shipment information, the requirement for the delivery person to sign for it, taking a photo of the final delivered item or item, etc...

6. State clearly the policies

The policies you have regarding refunds, returns, and cancellations are important 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. You're even more effective when you get the cardholder to sign or acknowledge the fact that they accept the conditions.

7. Use accurate product descriptions

The descriptions of the product must match the product. If the cardholder is sent something not the item they believed they purchased The cardholder may dispute the charges because they'll believe you sent them the wrong product.

The details matter. Don't skimp.

8. Remove discontinued or out-of-stock items

Remove items from your online shop that are no more available so customers can't order an item they'll never receive. Consider doing the same thing for items that are not in stock, provided you're able to quickly and easily add an out of stock' graphic on your product's pages and update changing the status as it changes.

out of stock settings in

9. Take care when placing international orders

Certain kinds of frauds are an unfortunate reality in our day-to-day world ordering from specific areas could be at a greater threat. It helps to choose a payment solution that includes fraud prevention to minimize this risk, such as Payments.

10. As much information about your customers as possible

Not every business needs to gather shipping details, but get it anyway. It helps confirm that a credit card holder is the person they claim to be.

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

  • Customer name
  • Customer email
  • CVC number that appears on the credit card
  • Full billing address and postcode
  • Shipping address, if differs from the billing address

11. Provide tracking details for the shipment

Be prompt with This. After a customer orders, they should receive an email with the tracking information within the shortest time feasible. Then, they'll receive regular notifications. This is a good way to prove if a customer claims it never came.

Strengthen your defenses against fraudulent charges

Are you looking to increase the detection of fraud? This is just one of the benefits of using Payments, which helps online businesses accept payments, preserve their reputation, and increase the profits they earn.