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Whatever industry you’re in, you’ll likely find yourself experiencing chargebacks, which can impact your revenue and customer relationships. Understanding this process and its implications is vital for any business looking to protect its revenue and maintain customer satisfaction. But what is a chargeback, and how can businesses proactively avoid them to mitigate risks? 

In this article, we’ll discuss how debit card chargebacks differ from chargebacks with a credit card, as well as offering actionable insights to avoid chargebacks, helping you to safeguard your business against financial losses and operational disruptions. 

What is a chargeback? 

Chargebacks occur when a customer disputes a transaction, prompting their bank to reverse the payment made to your business. The process typically begins when a customer contacts their bank to dispute a charge, often citing reasons such as not receiving the product, dissatisfaction, or fraudulent transactions. 

The bank then investigates and, if the claim is deemed valid, the payment is refunded to the customer and debited from the business’s account. There are a few key differences in the chargeback scheme depending on whether the initial transaction involves a credit or debit card. 

Chargebacks with a credit card 

Credit card purchases offer protection under Section 75 of the Consumer Credit Act. This law covers purchases between £100 and £30,000, providing a safety net for consumers if something goes wrong with their purchase. Even if they only use a credit card for part of the payment, they’re protected for the full amount. This legal protection makes credit card chargebacks more likely to be upheld in the event of a payment dispute. 

Debit card chargebacks 

Unlike credit cards, debit cards are not covered by Section 75. However, they do fall under the card provider’s individual chargeback scheme. This allows consumers to claim a refund if a purchase goes wrong, such as if they receive faulty goods or if a service is not provided. While it isn’t enforced by law and varies by card provider, it still offers a valuable layer of protection for consumers. 

What is the impact of chargebacks on businesses? 

The impact of chargebacks can be significant, particularly for smaller businesses that rely on regular cash flow. While chargebacks of course cause lost revenue, as the amount of the transaction is refunded to the customer, businesses also often incur a fee for each chargeback, meaning a single transaction could result in a net loss. 

Operationally, handling chargebacks can be time consuming, diverting resources from other areas of the business. Frequent chargebacks can also damage your standing with your payment processor, potentially leading to higher fees or even termination of your merchant account. 

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Take a look at this case study for our client Go-Ahead, who experienced a 54% increase in stopped fraudulent activity within just one month of using our fraud and risk management tool. This impressive improvement highlights the effectiveness and reliability of our solution in combating fraud and managing risks efficiently. 

Common reasons for chargebacks 

To better understand how to avoid chargebacks, it’s important to understand when one may occur. Here are some of the most common reasons for chargebacks. 

  • Customer disputes 

Customer disputes are a frequent cause of chargebacks for businesses. This includes cases where the product either wasn’t received or arrived but wasn’t as described, which may be common for ecommerce brands. For those offering services, customers may claim that the service provided didn’t meet their expectations, prompting them to initiate a chargeback. 

  • Processing errors 

Processing errors occur when mistakes are made during the transaction process. Examples include charging the customer twice for the same purchase or entering the incorrect cost. These errors can lead to customer dissatisfaction and result in chargebacks as they seek to correct the issue. 

  • Fraudulent transactions 

Fraudulent transactions happen when a purchase is made without the cardholder’s consent, either by using stolen card information or as part of an identity theft. These transactions often lead to chargebacks as cardholders dispute the unauthorised charges to reclaim their money. 

  • Friendly fraud 

Friendly fraud occurs when a customer disputes a legitimate transaction. This can happen if they forget that they made the purchase or, in some cases, if they intentionally make a claim to get the item for free. Despite being made for a legitimate transaction, this type of fraud is often harder to prove and can still result in a chargeback being made. 

How to avoid chargebacks for your business 

Implementing effective chargeback prevention strategies is essential to maintain financial stability and customer satisfaction. Here are some key methods to help your business reduce the risk of chargebacks. 

  • Implement robust fraud detection systems 

Use advanced software to identify and prevent fraudulent transactions. These systems can monitor and flag suspicious activity in real time, protecting your business from unauthorised purchases. Investing in robust fraud detection helps to safeguard your revenue and reduces the likelihood of chargebacks due to fraudulent activity. 

  • Write accurate product and service descriptions 

Ensure that your product listings are detailed and accurate to avoid misunderstandings that could lead a customer to believe that the item or service they received is not as described. Clearly explain features, dimensions and specifications, as well as any important terms and conditions, to set proper customer expectations and minimise chargebacks. 

  • Create strong customer service and return policies 

Provide excellent customer support and clearly outline your return policies to resolve issues before they escalate to chargebacks. Quick and effective communication can address customer concerns and offer other solutions such as refunds or exchanges. A well-defined return policy helps to manage customer expectations and reduces the need for chargebacks. 

  • Follow best practices for processing transactions 

Secure and efficient payment processing practices such as verifying customer information and using secure payment gateways can help to build trust with customers and lower the risk of chargebacks. Accurate record-keeping can also help to resolve chargeback disputes by providing evidence of legitimate transactions. 

Prevent chargebacks and protect your business with Access PaySuite

At Access PaySuite, we offer comprehensive solutions designed to help businesses to avoid chargebacks. Our fraud and risk management software is tailored to detect and prevent fraudulent transactions effectively, helping to avoid them from being processed in the first place.  

Get in touch today to find out more about our payments solutions. 

Frequently Asked Questions

How can I avoid chargebacks and reduce disputes?

To avoid chargebacks and disputes for your business, make sure to implement robust fraud detection, provide clear product descriptions, and provide excellent customer service. 

What are the risks and costs associated with chargebacks?   

Chargebacks result in lost revenue, incur additional fees, and can harm your relationship with your payment processor, all of which can be costly for your business. 

What is the difference between a chargeback and retrieval?

To initiate a chargeback, the customer must contact their bank or card issuer and provide details of the disputed transaction. Their bank will investigate the claim, which may involve requesting information from your business to determine whether to refund the disputed amount. 

How long does the chargeback process take?

It can take anywhere from 30 days to 8 weeks to process a chargeback, meaning your business won’t know for sure whether or not it has access to the disputed money during this period. 

What is the chargeback time limit?

The chargeback time limit varies depending on whether the transaction was made using a debit or credit card. Customers must make a chargeback claim within 120 days of purchase. 

What are the most common types of chargeback fraud? 

Common types of chargeback fraud include friendly fraud, where customers dispute legitimate transactions in order to gain a refund, and fraudulent transactions made without the cardholder’s consent. 

How can I protect my business against fraudulent transactions?

To protect your business against fraudulent transactions, make sure to implement advanced fraud detection systems and verify customer information thoroughly.