Merchant Chargeback Policies

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While it’s tempting to see chargebacks as a purely external threat driven by fraudsters and unethical customer behavior, the sad fact is that merchants can inadvertently create the conditions that cause disputes to flourish. Often, it’s not even merchant error that leads to these disputes, but rather that the merchant’s own policies are causing friction, confusion, and conflict when followed.

Instead of producing positive customer service outcomes while protecting the merchant from fraud and chargebacks, bad policy can do the opposite. How can merchants come up with chargeback policies that make things better, not worse?

New call-to-actionManaging a retail business requires creating policies to guide your operations and actions.

Without consistent policies for things like sales, customer service, shipping, returns, or subscription cancellations, you can’t provide a consistent customer experience or provide proper guidance for your employees.

The problem is that when policies are chosen arbitrarily, or when they’re unclear, they can be difficult both to follow and to enforce. Overly restrictive policies can make your customers feel insulted, and policies that are too lenient can be taken advantage of by friendly fraudsters and other bad actors.

Oh the flip side, policies that are crafted with fraud and dispute prevention in mind can help to minimize the chances that customer service issues will escalate to become chargebacks. Having a specific chargeback policy will allow you to manage the disputes that do escalate more effectively, increasing your win rate against illegitimate chargebacks and making it possible to recover even more of your jeopardized revenue.

What Is a Chargeback Policy?

There are many merchant policies that can directly impact your chargeback rate. An “all sales are final, no returns” policy increases the chances that dissatisfied customers will look for some pretext to dispute their purchase. Vague, ad hoc shipping and delivery policies can lead to customers filing “product not received” chargebacks when orders fail to arrive on time.

As part of the chargeback management process, it is vital that merchants review such policies and determine whether or not they are causing avoidable disputes.

However, merchants must also establish policies with respect to chargebacks themselves: when to accept them, when to fight them, how to record and store documentation for evidence in chargeback representment, and how to handle customers who have filed chargebacks against you in the past.

The validity of a chargeback can hinge on whether or not the merchant clearly communicated terms and conditions that the customer agreed to abide by, so having a clear, comprehensible, documented set of policies can actually make a difference in representment. Other policy choices may not directly impact chargebacks after they’ve been filed, but they can provide you with better opportunities to divert customers onto a less contentious path.

How Can Merchants Create Better Chargeback Policies?

When chargebacks happen for non-fraudulent reasons, it’s because the customer wished they had never made the purchase, and it’s usually because they feel like the merchant is no longer dealing with them in good faith.

Most customers understand that mistakes, delays, shipping damage, and other unfortunate events can occur. Of course, they usually expect the merchant to make things right in these circumstances.

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyThe customer’s first call or email will probably be to the merchant, not their bank—so the first essential policy element is to make sure you’re easily reachable, 24/7 if at all possible, and respond promptly to inquiries from your customers.

The focus of your policies for sales, shipping, refunds, and billing should be centered on the customer, which means that your priority should be creating better experiences and outcomes for your customers. Customer-centric policies help you build loyalty and avoid the sort of conflicts that lead to chargebacks.

All policies that affect your customers need to be documented in clear, easy-to-understand language and posted in places where your customers are likely to actually see and read them. Communicate the terms and conditions that are relevant to your customers prior to sale and provide them with a copy (printed on a physical receipt, emailed with a digital one) they can refer to later.

What Kind of Policies Can Help Prevent Chargebacks?

No policy is a foolproof talisman against chargebacks, but policies that are flexible and customer-centric can help you navigate your way out of tricky dispute scenarios with your revenue and customer relationships undamaged.

Shipping and Delivery Policies

  • Provide multiple shipping options for customers to choose from.
  • Proactively communicate about delays and errors in the shipping process.
  • Provide a tracking number for the shipment.
  • You can stop fraudulent “merchandise not received” chargebacks by requiring signed delivery confirmation

Return and Refund Policies

  • Provide a flexible and generous return policy that prioritizes the customer experience.
  • Cover the costs of return shipping.
  • Provide tracking and updates for returns.
  • Process refunds as quickly as possible.
  • Be upfront and transparent about your return requirements, restocking fees, non-returnable items, and other important details prior to sale.

Subscription Cancellation Policies

  • Provide plenty of advance notice when recurring billings are about to be charged.
  • Make it simple for customers to cancel their subscriptions or change their payment methods.
  • Don’t penalize the customer for going through the cancellation process. For example, if a customer cancels shortly after getting charged and requests a refund for that final payment, it’s best to refund the full month, or at least a prorated amount.

Chargeback Policies

    • Customers who engage in friendly fraud should be blacklisted—don’t sell to them again.
    • However, some customers will have legitimate reasons to file a dispute, such as fraud or merchant error. Blacklisting any and all customers who file chargebacks is not always the best approach.


Justifying policy choices can be difficult in the absence of solid data. By analyzing your transaction data, particularly where it intersects with fraud and chargebacks, you can make determinations about where you are most vulnerable and what policy changes might be needed in order to provide better protection.

Your customers are also an extremely valuable resource when it comes to devising policy. Listen to them when they express frustration about shipping, refunds, billings, and other interactions.

The customers who complain to you before calling their banks are doing you a huge favor, learn from them and figure out how to make changes that will resolve their issues and improve the experience for the next customer.

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