Mastering Chargeback Prevention: Best Practices

As digital transactions surge and businesses are increasingly prioritizing customer-centricity and customer satisfaction, merchants are realizing the importance of chargeback prevention as part of their customer retention and risk mitigation strategies.

In 2021, an average merchant lost $156 for each chargeback they received from a customer. In 2022, the numbers grew by 5.4%, amounting to a $165 per chargeback. While this number seems small at a glance, when taken into perspective across hundreds and thousands of transactions, the gradually increasing rates of disputes is sure to pose a massive threat to the merchants. 

The challenge of reducing chargebacks is intricately connected to the major concerns businesses have i.e., high customer satisfaction, sustaining revenue growth, mitigating potential losses, and limiting liabilities overall. Chargebacks present a significant pain point when it comes to managing a consumer business. Despite numerous efforts in chargeback prevention, most businesses will inevitably encounter them on a regular basis.

Since cardholders dispute only a small percentage of sales, many merchants simply write-off these losses as a “cost of doing business”. However, this approach underestimates the significant damage chargebacks can cause and there is no denying that these disputes pose a growing threat to businesses that drains revenue. Implementing effective chargeback prevention steps can remarkably reduce disputes for the merchants, helping them increase revenue retention and ensure long-term sustainability of the business. 

If you want to know more about the current state of chargebacks, how chargebacks have changed over the past several years, and what merchants need to be aware in 2024, you can download the CBG State of Chargebacks Report here. 

Let us delve deeper into some of the best practices merchants can adopt to not only prevent chargebacks but also to safeguard their businesses from the many new emerging fraud techniques.  

Analyze the Root Causes of Chargebacks 

The first step towards preventing chargebacks is to understand why they occur. It is crucial for merchants to dig deeper into their goldmine – “Data”, to identify trends linked to their products/ services, locations, and payment methods.  

For instance, a spike in chargebacks for a particular product category could be an indication of issues with product/ service descriptions, quality control or fulfillment processes. By uncovering these patterns and issues, merchants can efficiently fill the grouts in their businesses and implement targeted strategies and solutions to prevent future chargebacks. This approach not only prevents your financial losses but also enhances overall customer satisfaction by resolving recurring issues.

Implement Transparent Communication and Policies 

Clear and transparent communication is key to preventing misunderstandings that can lead to chargebacks. Always ensure that your terms and conditions, and policies are readily accessible for the customers and are written in an easy-to-understand language.  

Building trust with the customers is the foremost pillar when it comes to minimizing the likelihood of disputes over transactions – and transparent communication is the first big step towards that. Displaying your return, refund and exchange policies clearly will go a long way before a customer files a chargeback out of confusion or frustration. Having these policies prominently displayed can prevent disputes before they arise.

Use Recognizable Billing Descriptors 

One of the main reasons why customers dispute charges is because they do not recognize or recollect the description of the expenditure on their statements. The expenditures of the customer are shown on the statement via small descriptions, called as the billing descriptors. Ensure your business name or a familiar abbreviation appears on the statement, making it easy for customers to connect the charge to their purchase. 

Using billing descriptors that customers will recognize on their statements can significantly reduce confusion and prevent disputes. This simple step can significantly lower the likelihood of chargebacks that are filed due to unrecognized transactions. Clear and recognizable billing descriptors not only help in reducing confusion for customers but also minimize the administrative burden associated with handling chargebacks for the merchants.

Invest in Customer Service 

Merchants often find themselves encountering disputes even with customers who have made genuine purchases merely because of a lack of good customer service. Many customers file chargebacks because either they did not get a timely response from the merchant or because they did not get a resolution to their issue. This is where a well-trained customer service team serves as a crucial defence against chargebacks.  

Businesses can prevent the frustration of a customer escalating into chargebacks by promptly addressing the concerns that customers have and resolving issues to their satisfaction. Investing in efficient customer service not only enhances customer satisfaction but also minimizes the risk of financial losses. Regular training sessions to keep the team updated on best practices and common issues can also contribute notably to reducing chargebacks. 

Enhance Fulfilment and Delivery Processes 

Addressing the issues with fulfilment and delivery is paramount when it comes to ensuring chargeback prevention for merchants. Missing the promised delivery timelines and lack of optimization of order fulfilment are some of the common triggers for chargebacks. Ensuring timely and accurate delivery of products and services can remarkably reduce chargeback occurrences.  

Keep the customers updated about their order status and offer robust tracking systems. Address any delays or issues that arise during the shipping proactively, to enhance the customer experience. Use reliable carriers for shipping and establish clear communication about delivery timelines, potential delays, and how to handle lost or damaged items, to further prevent misunderstandings and disputes. 

Securing Success

As merchants navigate the several new fraud techniques and challenges in the form of ever-changing rules of digital transactions, while also prioritizing the customer experience, the threat of chargebacks only looms larger. However, merchants can effectively mitigate losses and risks posed by chargebacks to their businesses by implementing proactive chargeback and dispute prevention measures.  

Merchants can not only minimize the occurrence of chargebacks but also preserve financial stability and reputation by leveraging smart business strategies like analyzing the root causes of the disputes, establishing clear communication, and having customer centric approach towards order fulfilment.  

Mastering chargeback prevention isn't just a best practice – it's an absolute imperative for success. Implementing the insights and recommendations from industry reports like The State of Chargebacks Report developed by Chargeback Gurus in partnership with TSG, merchants can stay ahead of potential issues and nurture a secure and trustworthy environment for their customers.