Chargeback Management

Chargeback Costs Summarized

Chargeback Costs

Table of Contents

  1. What is a chargeback fee?
  2. What are the hidden costs of chargebacks?
  3. How do you prevent chargebacks?
  4. Chargeback disputes can be a waste of time and money
  5. Do companies get charged for chargebacks?
  6. Is doing a chargeback illegal?
  7. What is the difference between a chargeback and a refund?

You offer good products, you have the best delivery record, and your customer service is second to none. Your reputation is spotless, and no one could complain that you cheated them. However, sooner or later, someone will.

It's a normal part of doing business these days to accept payments by credit cards, and unfortunately, it's just as normal for one of your customers to try to get their money back through a credit card chargeback. Even if this is an infrequent occurrence for your business, you should always fight any illegitimate chargebacks you receive, and take steps to prevent future chargebacks. Failure to do so can cost your business a lot more than you might realize.

What is a chargeback fee?

Acquiring banks charge merchants a fee whenever they receive a chargeback. While some acquirers may charge fees as low as $5 or as high as $250 for high-risk merchants, the typical chargeback fee is somewhere between $20 and $100.

The credit card company will credit back the charge to the cardholder asking for a chargeback even before they notify your bank of the claim. In law, everyone is presumed innocent until proven guilty, but in banking, this does not apply to the merchant. The cardholder is always given the benefit of the doubt, and all the costs fall on the merchant.

If you lose the case or decide not to contest it, you will also lose the money the customer paid you.

While fighting a chargeback won't recover all the costs involved, it will recover the transaction amount. It can also provide insight that will help you prevent future chargebacks.

While the chargeback fee and transaction amount are the most obvious costs associated with chargebacks, there are also hidden costs that many merchants fail to account for.

What are the hidden costs of chargebacks?

New call-to-actionAs any merchant knows, a lot more goes into a sale than just accepting the payment. When you receive a chargeback, any time, money, or effort put into acquiring that customer and making the sale is wasted. It's important to account for these costs, too.

Here are some of the hidden costs that are often associated with chargebacks:

  1. Marketing: You most likely invested time and money into the marketing of your product or service. For many merchants, this means paying a third-party company based on clicks, leads generated, or some other metric. When you lose both a sale and a customer due to a chargeback, that time and money goes down the drain.
  2. Sales and customer service: Depending on your business, you may have a sales team dedicated to converting leads into sales, or a customer service team that frequently helps customers before or during the purchase process. When that hard-earned sale results in a chargeback, the time your employees spent with that customer is wasted.
  3. Operational costs: Products cost money to make, ship, and sell. Services take planning and infrastructure. Every time a fraudulent chargeback occurs and you lose a sale, the time and money that went into providing that product or service is lost as well.
  4. Transaction fees: Any credit card purchase comes with a transaction fee, which is usually relatively minor compared to the incoming revenue. When you're hit with a chargeback, however, you're left with a transaction fee without the transaction.

Fighting a chargeback and winning won't get you back any of these costs, nor will it prevent your chargeback ratio from increasing. That's why it's important to focus on preventing chargebacks as well.

How do you prevent chargebacks?

Methods of preventing chargebacks include having a clear merchant descriptor, good customer service, a generous refund policy, and effective fraud prevention tools.

While no merchant is immune to chargebacks, following best practices for preventing them can be an effective way to limit how many you have to deal with. A professional chargeback management company can also provide you with recommendations and tools for your specific business to help you prevent as many chargebacks as possible.

Chargeback disputes can be a waste of time and money

Your business acquaintances might have shared some nightmare stories with you about their experience with chargeback disputes. Perhaps the issuing bank seemed to completely ignore the evidence they provided and upheld the chargeback, or filed a pre-arbitration chargeback after the cardholder completely changed their entire story about what happened. You might decide that all that effort isn’t worth the diversion from your everyday business.

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyIn many ways, you have the right attitude. Your time is better spent operating your business than completing forms and waiting for appointments at the bank. You might not know how to fight a chargeback, and even if you learn, you still might not win.

There are good reasons to avoid spending your time fighting chargebacks, but that doesn't mean you should just ignore them.

Instead, consider hiring a chargeback management company to fight chargebacks for you. These experts have a much higher win rate when fighting chargebacks than companies who choose to handle them in-house, and typically provide an excellent return on investment for businesses who are struggling with chargebacks.

FAQ

Do companies get charged for chargebacks?

Yes. Companies will be assessed a chargeback fee, the amount of which depends on the credit card network.

Is doing a chargeback illegal?

Customers with legitimate fraud issues can legally file chargebacks. Cardholders who try to lie and defraud banks and merchants through chargeback fraud are breaking the law.

What is the difference between a chargeback and a refund?

Refunds are provided willingly by the merchant, whereas a chargeback is a forced reversal of a transaction. All things being equal, merchants should opt for refunds.


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