Creative news

What can you do to prevent and manage Payment Disputes or Chargebacks

Jan 17, 2023

In some cases, when you operate an online business it is possible to make a sale and then receive a dispute notification. This usually happens weeks or even months - after the first transaction. Now you've got administrative work to handle and the possibility of losing revenue from the sale, and less time to focus on running your business.

Although this can be an infrequent event If it occurs on a regular basis major partners like companies that deal with credit cards could begin to charge fines, enforce tighter regulations, or even close ties to your business.

Good news is that a proactive plan to avoid disputes and handle the situation when it does happen keeps your shop free of any aches. Even better news? Learn all you require to know about this in this post.

Table of contents

What are chargebacks or disputes?

The payment dispute can happen anytime a cardholder contacts their credit card provider to contest a charge on their bill. The credit card company takes these complaints seriously, and if they decide that the cause for the dispute is valid the company will issue a temporary credit to the account of the customer as the dispute is addressed. It's also known as the chargeback.

How come disputes and chargebacks happen?

There are two main sources of disputes regarding payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

The two will be discussed in greater detail in a little bit more time.

From the first look it would appear that you be more in control of the first one than the other. In reality, you have some control over both, as you're about to see.

The reason why merchants must address disputes

Payday debts aren't something one can simply put off and hope that they disappear away. They aren't going to go away. By ignoring them, you'll create problems that will affect the longevity of your store.

The card networks monitor your dispute rate (the ratio of confirmed transactions in comparison to those that are disputed) and can charge you higher fees or issue penalties when your situation isn't favorable.

What should you do if you encounter a dispute with a credit card

This is what you should do when you get a notice of a payment dispute Notice of a payment dispute:

Respond immediately

If the network of your credit card initiates an inquiry, it is imperative to respond promptly. If you're using Pays, you'll be notified of any disputes via emails and an inbox message within your account dashboard.

A lack of response within the shortest amount of time makes them believe that you're not going to dispute the issue. Every credit card has its own timeframe for how long an inquiry into a dispute remains open. However, you'll need to carefully gather evidence while making sure you submit the evidence prior to when the deadline runs out.

If you're using PayPal, it is easy to sign into the dashboard of your store to reply to the dispute.

dispute response in Payments

Provide documentation

Then, you must provide proof that is clear and convincing about the specific transaction. The evidence should include the number of your credit card (or the reduced version) along with the date and amount of the transaction as well as any details of the purchase or proof of delivery on file.

This information will allow them to eliminate the possibility of fraud, as well as ensure that everyone is on an understanding of the circumstances.

Submit requested evidence

In addition to the basic document, the credit card company may ask for additional information concerning the transaction. Even if they do not need it, you must submit the required documentation anyway. Taking the time to gather all the required documentation is time well spent however, make sure that you've submitted all the information before the deadline.

The type of documentation you send will depend upon the type of dispute that you're having. There are at minimum seven kinds of disputes involving payments:

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

What happens if you don't respond to chargebacks?

Chargebacks can be intimidating and challenging to manage. Yet, they are an essential aspect of managing a business by following a few simple steps could save you from a lot of hassle. Credit card companies still want for you to achieve success and protect their customers, so work within the guidelines to keep a solid reputation.

If you decide to completely ignore chargebacks, however the situation can get complicated. The following is the process of ignoring or not checked chargebacks:

In the beginning, you'll lose profit and the revenue from the sale and have to take a charge on top of that loss.

If your dispute numbers start to increase and you aren't able to manage them, your card network might impose more fines and more fees until you get the chargeback percentage down. If the problem persists and you are unable to access your sales, they could block you from accessing portions of your sales revenue. In the end, they may cease allowing you to accept the payments and label your account as risky.

This might stop other card networks from doing business with your company. And if you can't accept transactions online, you won't be able to manage your business properly.

Of course, this is an extreme case. This is completely preventable if you take the right actions.

What is a dispute threshold?

The dispute threshold, or chargeback threshold is the method that network card companies use to assist in deciding when to raise monitoring and penalties on businesses or merchants to get them to reduce the rate of disputes.

What is the rate of dispute?

The 'dispute rate' measures the amount of disputes that are disputed per total processed transactions in the time frame like a week. So, if you had 500 transactions processed during a week and five of them were disputed that would give you a 1% disputation rate for the week.

It is different from "dispute activity' that measures the percent of disputes in a given time period regardless of date of processing.

There is a difference in that dispute resolution is not awaited until weeks or months after the purchase. This is what dispute activity includes. There could be five disputes in one week, but if three were related to purchases earlier in the week, the rate of dispute would include the two from that week, but your activity in dispute would be all five. Here is more about the work of Stripe about calculating disputes.

chart of dispute activity

Credit card networks typically use the activity of disputes to determine their levels of dispute. Also, every card company has its own threshold. It could be calculated based on disputes activity as well as the volume of dispute and, more often, both.

In particular, Visa will increase their charges against businesses with at least 100 chargebacks one month, and 0.9 percentage of dispute activity. The threshold for dispute with Mastercard starts at 1.5 1.5%.

The number of payments is beneficial for small businesses, because even if you receive only fifty payments during a month, and one of them gets disputed and you're at a two percent penalty. The volume threshold helps keep smaller companies from having to pay higher penalties.

If you're using the Payments platform and you have any questions regarding how to best handle dispute resolution, don't hesitate to reach out to the support team for assistance.

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

Now that you understand the nature of disputes Here are some ways to lower the number of disputes you have to resolve.

1. Use a clear bank statement descriptor

A clear statement descriptor informs the buyers where they purchased the item. This can help reduce the number of disputes caused by unrecognized charges. They'll see your information and be aware that the purchase was legitimate and wanted to make.

descriptor statement examples

If a client sees this on their statement and wonders about the charge the customer can call your number directly, rather than filing an appeal with the credit card company. In this case, you could resolve the issue by talking to the credit card company.

2. Put company info on transactions receipts

Similar to the bank descriptor, giving the customer easy-to-read, accurate data about the company on their receipts increases the chance that they'll call you when they have a problem, rather than the credit card business.

Incorporate your company's name along with your location, address, contact details including logo, website address along with a brief message on customer service. And be sure this doesn't interfere with the transaction details on the receipt.

3. Response to complaints from customers promptly and seek solutions

Be aware that there are at least seven causes of chargebacks. Several can be resolved before even reaching the dispute phase by offering good customer support.

If someone is unhappy with a product its condition, damages during delivery, or different aspects, talk to them and collaborate with them to solve the problem and avoid a chargeback.

4. Initiate contact before fulfilling an order that appears to be suspicious.

This is one of your greatest tools you can use to fight fraud. Being a smart company owner, it's essential to check your order to identify any signs of fraud or danger.

If you receive no response, particularly after repeated attempts or the phone number appears to be invalid, consider refunding the order , but not shipping it.

Many other processors provide an element of fraud-detection measurement, but they'ren't all that user-friendly. With Payments, it's right at the bottom of every transaction. There's no need to sit in a waiting room for your credit card company for the duration of your time.

5. Make sure you have confirmation of delivery

Whenever possible, this is an excellent piece of proof that you could use in which a buyer claims that their order never arrived. Examples include, shipment tracking information, the requirement for a signature upon delivery and taking a picture of the final delivered item or item, etc...

6. Clearly state policies

Your policies about refunds, returns, and cancellations are important for your clients. Make them part of your receipts and invoices. Include them on your most important website webpages, like your checkout page. Display them in store display. Even better, to have the person who is using your card confirm or sign that they agree to your terms.

7. Use accurate product descriptions

Descriptions of products must be in line with the item. When a cardholder receives something not the product they were expecting They may challenge the amount because they'll think that you shipped them the incorrect item.

Details matter. Don't skimp.

8. Remove discontinued or out-of-stock items

Remove items from your online store that are no longer accessible so that buyers don't need to purchase items they will not receive. It's possible to do the same thing for items that are not in stock, provided you are able to easily and precisely include an 'out of stock' icon on the relevant product pages and update it as the status alters.

out of stock settings in

9. Be wary of international purchases

Certain kinds of frauds can be a reality this day and age, and orders from some regions may pose a higher threat. It is recommended to select the payment method that incorporates the ability to detect fraud in order to reduce the risk of fraud, for instance Payments.

10. As much information about your customers as is possible

Not every business needs to collect shipping information however, it is a good idea to collect it. It helps confirm that a credit card holder is the person they say they are.

In every transaction, you need to know the following details:

  • Name of the customer
  • Customer email
  • CVC number printed on their credit card
  • Postcode and billing address for full details.
  • Shipping address, if differs from the billing address

11. Send shipment tracking information

Make sure you are prompt in This. Once a customer has placed an order and receives an email with tracking info whenever feasible. Following that, they will get periodic update. This can be used as proof if a customer claims they never received the item.

Strengthen your defenses against fraudulent charges

Are you looking to increase your fraud risk detection? It's only one advantage from using Payments. It assists online businesses to accept payments and protect their image and boost the profits they earn.