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How do you manage and prevent the occurrence of Chargebacks and Payment Disputes

Jan 17, 2023

When you run an online store it is possible to make a sale but later receive a payment dispute notice. It usually occurs weeks or even months - after the first sale. Now you've got administrative work to do and the possibility of losing revenue from the sale, and less time to focus on running your business.

Though this may be not a frequent occurrence If it occurs frequently major partners like credit card companies might begin to fine you, or impose more stringent rules or cut ties with your business.

The good news is that a proactive plan to stop disputes from happening and to manage the situation when it does happen will keep your store clear from headaches. Even better news? There is all you require to know in this article.

Table of contents

What is a dispute? What are chargesbacks?

The payment dispute can happen whenever a customer contacts their credit card company to challenge a charge that was made in their bill. The credit card company takes these concerns seriously, and in the event that they determine that the reason of the dispute is legitimate, they'll provide a provisional credit to the account of the customer until the issue is settled. It's also known as a chargeback.

How come disputes and chargebacks occur?

There are two main sources of disputes regarding 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 have much more control over the first one than the second. In reality, you have some control over both, which you're about to see.

Why merchants need to address dispute

There aren't any payment disputes that one can simply leave them unattended and hope that they will go off. They aren't going to go away. Ignoring them will just create problems that can impact the long-term viability of your store.

Card networks track your rate of dispute (the ratio of confirmed transactions in comparison to those that are disputed) and can charge you higher fees or issue penalties if yours is unfavorable.

What to do when you receive a payment dispute

This is what you should do when you get a dispute with your payment notice:

React immediately

If the network of your credit card begins with an inquiry, you must respond as quickly as possible. If you use Payments, you'll be notified of any disputes via mail and also an email notification within your dashboard.

In the absence of a response in a fairly short amount of time causes them to presume you're not planning to contest the dispute. Each card network has their own timeframe for how long an inquiry into a dispute remains open. You'll need take care to gather the right evidence when submitting said evidence before the period expires.

If you're using Payments you can easily log into your store's dashboard to respond to the dispute.

dispute response in Payments

Provide documentation

Then, you must provide solid and unambiguous proof of the transaction in question. The evidence should include the credit card number (or the truncated version) as well as the date and value of the transaction as well as the order information or evidence of delivery you have in your file.

This information helps them rule out any possibility of fraud as well as ensure that everyone is on an understanding of the issue.

Submit requested evidence

Along with the standard document, the credit card company may ask for additional information regarding the transaction. Even if they do not need it, you must submit the required documentation anyway. Taking the time to gather all of the requested documents is well worth the time, but make sure you've submitted all the information before the deadline.

The kind of proof that you provide will be contingent on the type of payment dispute that you're having. There are at the very least seven different types of dispute over payment:

  1. Refund wasn't processed
  2. Multiple charges
  3. Fraudulent charges
  4. Inaccurate charges
  5. Product not received
  6. Product unacceptable
  7. Subscription canceled

What happens if you don't take action to chargebacks?

Chargebacks might seem intimidating or challenging to manage. But, they're an essential aspect of managing a business and following some simple steps can save you a lot of anxiety. The credit card industry still wants you to be successful in protecting their clients so you must follow the guidelines to keep your good name.

If you decide to completely ignore chargebacks, however the situation can get complicated. Here's the progression of ignored or unchecked chargebacks:

The first thing you do is lose profit and the revenue from the sale, and you must take a charge on top of that loss.

If your disputes start to accumulate and you don't manage them, your card network may impose fines or more fees until you get the chargeback percentage to a lower level. If you continue to have issues and you are unable to access your sales, they could block you from accessing portions of your revenue from sales. In the end, they may stop allowing payments, and mark your account as high-risk.

It could stop the other card companies from wanting to do business with the company. In addition, if you don't allow payments online, you can't manage your business properly.

Of course, this is not a typical situation. It's totally preventable if you make the proper steps.

What is a dispute threshold?

The threshold for dispute, also known as the the threshold for chargeback is the method that network card companies use to assist in deciding when to raise monitoring and penalities on businesses or merchants in order to decrease the rate of disputes.

What's a dispute rate?

The "dispute rate" measures the amount of disputes that are disputed per total processed transactions in a given time period like a week. For example, if there were 500 payments processed in a week and five of those got disputed and five were not, you'd have an average of 1% for the disputation rate for the week.

This differs from "dispute activity,' which measures the percentage of disputes that occur in a given time period, regardless of processing date.

The difference is that some dispute resolution is not awaited up to a few months or weeks after the purchase. The process that disputes encompasses. You might get five disputes within a week, but if 3 of them are related to transactions earlier in the week, then the rate of dispute would be the two that occurred during this week. However, the dispute activity will include 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. Each card network is governed by its own set of thresholds. The threshold could be calculated based on disputes activity, dispute volume and, more often it could be both.

In particular, Visa will increase their penalty against businesses that have more than 100 chargebacks a month and 0.9% disputing activity. However, Mastercard's threshold for disputes starts at 1.5 percent.

The volume threshold is useful to small-sized businesses because when you're only receiving 50 payments in a given month, and one gets denied, you're already at a 2% rate. This means that the threshold for volume keeps small businesses from being subject to more severe penalty.

If you're using the Payments platform and are unsure of how best to deal with dispute resolution, don't hesitate to call the Support team to get help.

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

Once you know how disputes are made, here are some strategies to help reduce your dispute rate.

1. Use a clear bank statement descriptor

An accurate statement of description will inform your buyers of where they purchased the item. It could immediately reduce claims resulting from charges that are not recognized. Your information will be visible to them and they'll remember that, yes, the purchase was legitimate and wanted to make.

descriptor statement examples

In the event that a consumer sees this on their statement and wonders about the charge, they may call us directly instead of filing an appeal with their credit card provider, and you can resolve it with them.

2. Put company info on transaction receipts

The same reasons apply to the bank descriptor, giving customers easy-to-read and accurate data about the company on their receipt increases the likelihood that they'll phone you when they have a problem, rather than their credit company.

Include the name of your business address, phone number, physical address as well as your logo, site, and a message about customer support. Make sure that this does not interfere with the transaction details on the receipt.

3. Resolve customer complaints quickly and find solutions

Keep in mind that there are at least seven causes of chargebacks. Several can be resolved before getting to the dispute stage by offering good customer support.

When a client complains about a product, its condition, damages in the delivery process, or any other aspects, listen to them, and then work together to resolve the issue without the possibility of a chargeback.

4. Contact the company before executing suspicious orders

It's among the best tools to use against fraud. As a knowledgeable business proprietor, you need to check your order to identify any signs of risk or fraud.

If you do not receive any response, particularly after repeated attempts, or if your telephone number is not valid, think about refunding the purchase without sending it.

The majority of other payment processors have an element of fraud-detection metric, but they're not always as easy to use. With Payments, it's right there next to each transaction. It's not necessary to wait in a waiting room for your credit card company all entire day.

5. You must provide the proof of delivery

If you can, this will be an evidence-based piece to use where a customer claims the order never arrived. Some examples include tracking shipment specifics, needing the delivery person to sign for it or taking a photograph of the item that was delivered, etc...

6. It is imperative to clearly state the policy

Your policies about refunds, returns, and cancellations matter to customers. Put these on your invoices or receipts. Feature them on key website webpages, like your checkout page. Include them on store displays. Even better, to get the cardholder to confirm or sign the fact that they accept your terms.

7. Use accurate product descriptions

Descriptions of products must be in line with the item. If a customer receives a product not the product they were expecting, they may contest the charge because they'll assume they received the wrong item.

Details matter. Don't skimp.

8. Get rid of items that are discontinued or no longer available.

Eliminate items from your store that are no longer in stock, so that customers don't have to order something they won't be able to receive. It's possible to do the same for items not in stock, provided you are able to easily and precisely include an 'out of stock' image on your product's pages and update this as status alters.

out of stock settings in

9. Be cautious with international orders

Certain types of fraud can be a reality our day-to-day world ordering from specific regions may pose a higher risk. It helps to choose an option that has fraud prevention to minimize the chance of this happening, like payments.

10. Gather as much information from customers as is possible

It's not necessary for every company to collect shipping information, but get it anyway. It can be used to verify that the cardholder is who they claim to be.

Each time you make a purchase, you will need these details:

  • Customer name
  • Customer email
  • CVC number that appears on the credit card
  • The full billing address as well as the postcode
  • Shipping address, if differs from the billing address

11. Tracking information for your shipment

Make sure you are prompt in this. Once a customer has placed an order the item, they will receive the email with tracker information within the shortest time is possible. Following that, they will receive regular updates. This serves as more evidence when a client claims that it never came.

Strengthen your defenses against fraudulent charges

Want to improve your fraud risk detection? It's only one advantage that Payments offers, and it allows online companies to accept payment, preserve their reputation, and maximize profits.