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What can you do to prevent and manage the occurrence of Chargebacks and Payment Disputes

Jan 17, 2023

When you run an online shop, you make a sale however, you later get a dispute notice. It usually occurs weeks even months after the first sale. Now you've got administrative work to handle and the possibility of losing revenue from the sale, and you'll have less time for the running of your company.

While this is usually rare, if it happens on a regular basis significant partners such as credit card companies might begin to levy fines, impose more stringent rules or end ties with your company.

The 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? You can learn everything you need to know from this article.

Table of contents

What exactly are dispute or chargebacks?

Payment disputes can occur whenever a customer contacts their credit card provider to challenge a charge that was made on their bill. Credit card companies take these concerns seriously, and in the event that they find that the motive for the dispute is valid and they'll issue a pro forma credit to the account of the customer until the issue is settled. It's also known as the chargeback.

Why do chargebacks and disputes occur?

Two main sources of disputes regarding payment:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll go into more detail about both a bit later.

At first glance, you would think you'd enjoy more control over the first one than the other. The truth is, you do have control over both of them, as you'll see.

How merchants should react to disputes

There aren't any payment disputes that you can just ignore and hope they go off. They won't. If you ignore them, it will cause problems to escalate that will affect the longevity of your store.

Credit card companies monitor the rate of disputes (the ratio of verified transactions in comparison to those that are disputed) and may charge higher costs or penalize you in the event that your rate is not favorable.

What to do when you get a chargeback

Here's what to do when you receive a payment dispute notification:

Respond immediately

If the network of your credit card begins with an inquiry, it is imperative to respond promptly. If you're using Payments You'll be alerted of any disputes via mail and also an email notification in your account dashboard.

In the absence of a response in the shortest amount of time leads them to presume you're not planning to dispute the issue. Every card company has its specific timeframes for when an inquiry into a dispute remains open. However, you'll need to carefully gather evidence while submitting said evidence before the timeframe runs out.

If you're using PayPal, it is easy to sign into your store's dashboard to respond 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's number (or the version that is truncated) as well as the date and amount of the transaction, and any order details or proof of delivery you have on file.

This helps them rule out the possibility of fraud, and also ensure that all employees have the same understanding of the circumstances.

Submit requested evidence

Along with the standard documents, the network may ask for additional information regarding the transaction. If they don't, you should send your documentation regardless. The time spent gathering all the required documentation is time well spent however, make sure that you've gathered and submitted everything prior to 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 least seven kinds of disputes involving payments:

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

What happens if you fail to take action to charges?

The concept of chargebacks may seem daunting or challenging to manage. Yet, they are an essential element of running a shop and following some simple steps will save you lots of hassle. The credit card industry still wants you to be successful while protecting their users, so work within the guidelines to keep a solid reputation.

If you decide to completely ignore chargebacks, however, things can become difficult. This is the sequence of unchecked or unchecked chargebacks

The first thing you do is lose profit and the revenue from the sale. You also have to pay a fee plus the loss.

In the future, if dispute numbers start to increase and you fail to maintain control of them Your card provider might impose more fines and higher fees until you bring your chargeback rates to a lower level. If you continue to have issues, you might be restricted in accessing a portion of your sales revenue. Then, eventually, they will stop allowing payment, as well as mark your account as risky.

It could stop the other card companies from doing business with the company. And if you can't accept transactions online, you won't be able to manage your business properly.

It's true that this is a rare instance. It's totally preventable if you take the right steps.

What is a threshold of dispute?

The threshold for dispute, also known as the the chargeback threshold is the threshold that credit the card networks employ to help in deciding when to raise the monitoring of businesses or merchants to get them to reduce 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 an allotted time for example, a week. In other words, if you have 500 transactions processed during a week and five of them were disputed, you would have an average of 1% for the percentage of disputes for that week.

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

The difference is that some dispute resolution is not awaited up to a few months or weeks after the purchase. The process that disputes incorporates. You might get five disputes during a single week, but if 3 of them are related to transactions made prior to that week, then the rate of dispute would be the two that occurred during that week, but your dispute activity would include the entire five. Here's more from Stripe regarding the measurement of the number of disputes.

chart of dispute activity

Credit card networks usually use disputes as their primary source of levels of dispute. And again, each card company has its own threshold. The threshold can be determined dependent on the volume of disputes and volume of disputes, or more commonly it could be both.

For instance, Visa will increase their penalty against businesses that have at least 100 chargebacks one month, and 0.9% dispute activity. However, Mastercard's threshold for disputes starts at 1.5 1.5%.

The volume number is helpful for small businesses, because when you're only receiving fifty payments during a month, and one of them gets disputed and you're at a two percent penalty. This means that the threshold for volume keeps smaller companies from having to pay higher fines.

If you're using Pays and have questions about how to best handle dispute resolution, don't hesitate to contact the customer Support team to get help.

How can I lower my online store's rate of dispute?

Now that you understand how disputes work There are a few strategies to help decrease the amount of disputes that you face.

1. Use a clear bank statement descriptor

An explicit statement description informs the buyers where they purchased an product. It could immediately reduce disputes caused by unrecognized charges. Your information will be visible to them and they'll be aware that this is a genuine purchase that they wanted to make.

descriptor statement examples

In the event that a consumer finds this charge on their account and is puzzled by the charge, they may call us directly instead of filing an appeal with the credit card provider, and you may be able to resolve the matter through the company.

2. Add company details on transactions receipts

For the same reason as the descriptor for banks, providing your customer clear, easy-to read company information on their receipt will increase the likelihood that they'll phone you if there's a problem, rather than their credit business.

Incorporate your company's name along with your location, address, contact details as well as your logo, site as well as a note about customer support. Make sure that this does not affect the details of your transaction on the receipt.

3. Response to complaints from customers promptly and look for solutions

Be aware that there are at most seven causes of chargebacks. Several can be resolved before reaching the dispute stage simply through providing excellent customer service.

If someone complains about a product, its quality, damage during delivery, or other issues, you should listen to them and collaborate with them to solve the problem and avoid the possibility of a chargeback.

4. Initiate contact before fulfilling suspicious orders

This is one of your best tools to use against fraud. As a knowledgeable company owner, it's essential to review your orders to identify any signs of risk or fraud.

If you receive no response, particularly after repeated attempts, or if the phone number seems to be incorrect, you may want to consider refunding your order , but not shipping it.

Most other payment processors offer the possibility of a fraud detection metric, but they're not always as easy to use. With Payments, this is right on top of each transaction. It's not necessary to wait on hold for your credit card company for the duration of your time.

5. Get confirmation of delivery

Whenever possible, this is a solid piece of evidence that you could use when a client claims that the order never arrived. For instance, tracking the shipment information, the requirement for a signature upon delivery, taking a photo of the final delivered item, etc...

6. Clearly state policies

Your policies about returns, refunds and cancellations affect your customers. to your customers. Put these on the invoices or receipts you send out. They should be featured on important web pages, such as your checkout page. Put them on display in stores. You're even more effective when you have the person who is using your card confirm or sign that they agree to the conditions.

7. Use accurate product descriptions

Product descriptions need to match the actual product. If the cardholder is sent something which isn't what they thought they ordered, they may contest the charge because they'll assume you sent them the wrong product.

Attention to detail is crucial. Don't skimp.

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

Take items off your online store that aren't available so customers can't order an item they'll never get. It's possible to do similar for products that are not in stock, provided you are able to easily and precisely add an out of stock' image on the relevant product pages as well as keep track of it as the status shifts.

out of stock settings in

9. Take care when placing international orders

Certain types of fraud occur in our day-to-day world, and orders from some regions may pose a higher threat. It is recommended to select a payment solution that includes fraud detection to help mitigate the risk of fraud, for instance Payments.

10. Gather as much information from customers as you can

There are many businesses that do not need to collect shipping information, but get it anyway. It helps confirm that a person who is a cardholder is indeed who they say they are.

In every transaction, you need the following information:

  • Customer name
  • Customer email
  • CVC number on the credit card
  • Postcode and billing address for full details.
  • Delivery address, if differs from the billing address

11. Provide tracking details for the shipment

Make sure you are prompt in This. After a customer orders the item, they will receive the email with tracker info as soon as possible. After that, they should get periodic updates. This is a good way to prove if a customer claims the product never arrived.

Strengthen your defenses against fraudulent charges

Are you looking to increase your fraud risk detection? This is just one of the benefits from using Payments. It allows online companies to accept payment and protect their image and increase profit.