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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 shop when you sell something, however, you later get a demand notice. This usually happens weeks sometimes even months later the purchase. Now you've got administrative work to take care of as well as the chance of losing revenue generated by the sale, and lesser time to concentrate on managing your business.

Although this can be not a frequent occurrence If it occurs on a regular basis, important partners like credit card companies might begin to levy fines, impose stricter rules, or close ties to your business.

Good news is the proactive approach to prevent disputes and manage those that do arise will keep your store clear of any aches. Even better news? Learn everything you need to know about this in this post.

Table of contents

What exactly are dispute or chargebacks?

Payment disputes can occur whenever a customer contacts their credit card company to challenge a charge that was made that was incurred on their account. The credit card company takes these complaints seriously, and if they decide that the cause of the dispute is legitimate the company will issue a temporary credit on the customer's account as the dispute is addressed. This is also known as charging back.

Why do chargebacks and disputes occur?

There are two main causes of payment disputes:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll go into more detail about both in a little bit more time.

From the first look, you would think you'd enjoy more control over this one than the other. The truth is, you have some control over both, which you'll see.

How merchants should address dispute

There aren't any payment disputes that you just can put off and hope that they disappear off. They aren't going to go away. By ignoring them, you'll cause problems to escalate that can impact the long-term viability of your business.

Card networks track the rate of disputes (the ratio of confirmed transactions in comparison to those that are disputed) and can charge you higher charges or impose penalties when your situation isn't favorable.

What should you do if you receive a payment dispute

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

React promptly

If the card network initiates an inquiry, you should respond immediately. If you're using Payments, you'll be notified of any disputes via email and an inbox notification in the dashboard.

A lack of response within an extremely short period of time leads them to believe that you're not going to challenge the claim. Every credit card has its individual timeframes to determine how long a dispute inquiry remains open. You'll need to be careful in gathering evidence prior to submitting said evidence before the deadline expires.

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

dispute response in Payments

Provide documentation

Next, provide proof that is clear and convincing about the transaction in question. It should contain the number of your credit card (or the truncated version), the date and amount of the transaction, and any details of the purchase or proof of delivery that you keep in your file.

The information they gather allows them to rule out the possibility of fraud, and ensures that everyone has the same knowledge of the situation.

Submit requested evidence

Apart from the normal document, the credit card company might ask for more information regarding the transaction. And even if they don't need it, you must submit the required documentation anyway. The time spent gathering all of the requested documentation will be well-spent however, make sure that you've gathered and submitted everything by the time the deadline is.

The type of evidence you send will depend on the type of payment dispute that you're having. There are at least seven kinds of disputes involving payments:

  1. It 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 respond to charges?

The concept of chargebacks may seem daunting or complicated to handle. But, they're an essential part of running a store by following a few simple steps can save you a lot of stress. The credit card industry still wants for you to achieve success while protecting their users, so work within the rules to ensure your good name.

If you decide to completely avoid chargebacks, things can become difficult. Here's the progression of ignored or not checked chargebacks:

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

If your disputes start to accumulate and you don't maintain control of them, your card network may impose fines or higher fees until you bring your chargeback rate to a lower level. If the problem persists then you could be barred in accessing a portion of your revenue from sales. Then, eventually, they will cease allowing you to accept the payments and label your account as high-risk.

This might stop other card networks from doing business with the company. If you aren't able to accept payments online, you can't really run your business.

It's true that this is an extreme case. It's totally preventable if you follow the correct steps.

What is a threshold for dispute?

The threshold of dispute, or the threshold for chargeback is the threshold that credit network card companies use to assist them decide when to increase the monitoring of a merchant or business to get them to reduce the rate of disputes.

What is the rate of dispute?

The "dispute ratio" is the amount of disputes per total processed transactions in a given time period for example, a week. In other words, if you have 500 transactions processed over a week and five of those got disputed and five were not, you'd have a 1% disputation rate for the week.

This is distinct from 'dispute activity', which is the percentage of disputes that occur in a given time period regardless of the date for processing.

It's the difference that disputes don't happen until weeks or months following the purchase. That's what the process of dispute encompasses. You might get five disputes in one week, but if 3 of those relate to purchases made prior to that week, your rate of disputes would include the two from that week, but the dispute activity will include all five. Here's more from Stripe regarding the measurement of the number of disputes.

chart of dispute activity

The credit card companies typically utilize disputes as their primary source of dispute thresholds. And again, each card company has its own threshold. The threshold could be based on dispute activity and volume of disputes, or more commonly the two.

In particular, Visa will increase their charges against businesses with more than 100 chargebacks the course of a month. They will also charge 0.9% disputing activity. However, Mastercard's threshold for disputes starts at 1.5 1.5%.

The number of payments is beneficial for small businesses, because even if you receive only 50 payments in a given month and only one is disputed the amount is already at 2percent rate. This means that the threshold for volume keeps smaller businesses away from the more severe penalty.

If you're using Pays and you have any questions regarding how best to deal with disputes, you can always reach out to the support team for assistance.

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

Now that you understand how disputes are made, here are some strategies to reduce your dispute rate.

1. Use a clear bank statement descriptor

An accurate statement of description will inform the buyers where they purchased the product. It could immediately reduce claims resulting from charges that are not recognized. The company will see your details and be aware that this is a genuine purchase that they wanted to purchase.

descriptor statement examples

If a client notices the charge on their bill and is puzzled by the charge and wants to contact you directly rather than file the dispute with the credit card provider, and you may be able to resolve the matter with the company.

2. Put company info on invoices for transactions

Similar to the bank descriptor, giving your customer clear, easy-to read details about their company on their receipt will increase chances that they'll contact you in the event of a concern and not their credit company.

Include the name of your business address, phone number, physical address including logo, website address, and a message about customer support. And be sure this doesn't alter the information about the transaction on the receipt.

3. Respond to customer complaints promptly and find solutions

Be aware that there are at minimum seven possible causes for chargebacks. Many of them can be addressed prior to getting to the dispute stage by offering good customer support.

If someone complains about the product's quality, the quality of it, any damage that occurred during delivery, or other aspects, listen to them and collaborate together with them to fix the problem and avoid a chargeback.

4. Make contact prior to fulfilling any suspicious orders

This is one of your greatest tools you can use to fight fraud. As a savvy company owner, it's essential 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 seems to be invalid, consider refunding the purchase without sending it.

Many other processors provide the possibility of a fraud detection measurement, but they'ren't always as easy to use. With Payments, it's right there next to each transaction. There's no need to sit on hold with your credit card company all day.

5. Get confirmation of delivery

Whenever possible, this is a solid piece of evidence to use where a customer claims the delivery was not made. Examples include, shipment tracking specifics, needing an order to be signed upon delivery or taking a photograph of the final delivered item, etc...

6. State clearly the policies

The policies you have regarding refunds, returns, and cancellations affect your customers. to customers. Put these on your receipts and invoices. They should be featured on important web pages, such as the checkout page. Put them on display in stores. Even better, to ask the customer to confirm or sign the fact that they accept the conditions.

7. Use accurate product descriptions

The descriptions of the product must match the item. When a cardholder receives something not what they thought they ordered, they may contest the charges because they'll believe that you shipped them the incorrect product.

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 available so customers can't order items they will not get. Consider doing the same thing for items that are not in stock, provided you are able to easily and precisely include an 'out of stock' graphic on relevant pages for the product, and keep up with changing the status as it alters.

out of stock settings in

9. Take care when placing international orders

Certain types of fraud occur in our day-to-day world ordering from specific regions may pose a higher risk. It is recommended to select the payment method that incorporates fraud prevention to minimize this risk, such as payment processing.

10. Collect as much customer information as you can

It's not necessary for every company to have shipping data, but get it anyway. It can be used to verify that the credit card holder is the person they claim to be.

In every purchase, you will need the following information:

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

11. Send shipment tracking information

Make sure you are prompt in This. When a client places an order the item, they will receive an email with the tracking information as soon as is possible. Following that, they will get periodic notifications. This is a good way to prove in the event that a buyer claims they never received the item.

Strengthen your defenses against fraudulent charges

Want to improve the detection of fraud? It's only one advantage from using Payments. It assists online businesses to accept payments keep their name and reputation and increase profits.