There’s nothing like a credit card chargeback to complicate your workday.
Navigating the world of payment processing, in general, can feel stressful for most businesses. But addressing chargebacks is probably one of the most confusing parts of handling credit cards.
We have a full-time team here dedicated to helping businesses use our payment processor, Schedulicity Pay. They know their payment processing fine print, which means they’re experts when it comes to refunds, chargebacks, and the like. So, we asked them to help us write this beginner’s guide to credit card chargebacks, also known as payment disputes.
Here’s the skinny on what chargebacks are, how to avoid them, and what you should do to prevent them from hurting your business.
Credit Card Chargebacks and Payment Processing: A Beginner’s Guide
In this guide:
- What are credit card chargebacks?
- Why do chargebacks happen?
- How bad are chargebacks for my business?
- How to dispute a chargeback
- How to prevent chargebacks from happening
What Are Chargebacks (or Payment Disputes)?
Surface-level, chargebacks are simple:
- A cardholder sees a charge on their debit or credit card statement that they feel is invalid.
- They file a dispute with their bank to get refunded for the transaction.
- The contested funds are automatically taken out of the merchant’s account until the chargeback is resolved.
This is where credit card chargebacks get more complicated. While it looks like the unhappy client is automatically getting a refund on the disputed charge (because those funds get automatically taken out of your account), the money is actually put in your 3rd party payment processor’s “holding account” until the dispute and arbitration period ends.
If you, the merchant, provide all the necessary documentation to win the dispute, those funds get put back into your account. If the client wins the dispute, they receive the refund they requested.
Why Chargebacks Happen
Chargebacks can happen for a variety of reasons, some of which you may have experienced when you’ve needed to dispute a charge on your own credit or debit card:
- Your card number gets compromised or stolen, e.g. you definitely did not order $300 worth of food from Postmates in Cleveland while you were at home watching Netflix in San Francisco
- Technical issues, e.g. a merchant accidentally double-charges for a service or product
- Item not received, e.g. you purchase a new pair of Tevas online, and the package never shows up (can you tell these are inspired by real life?)
Note: Merchant-issued refunds, meaning when a client needs to return an item they purchased and you, the business owner, issue a refund to their card, are also sometimes called chargebacks. But, for the sake of this article, we’re focusing on the chargebacks that might cause you problems.
How Bad Is It To Get a Chargeback?
They’re not great. Each time there’s a credit card chargeback, merchants (meaning you) have to pay a fee. Even if/when you win a chargeback dispute, those chargeback fees still apply. That amounts to anything from about $15 to upwards of $30 per chargeback depending on your processor.
That’s annoying enough. But in some cases — like when a customer claims the charge is fraudulent — the repercussions can be much worse. Your payment processor could shut your account down. Typically, this happens if your first-ever transaction results in a chargeback or if chargebacks become a repetitive pattern for your business. (All the more reason to read our tips below on how to avoid chargebacks completely.)
How to Resolve a Chargeback Issue
As a merchant involved with cardholders, contactless payment, terminals, and banks, sooner or later, you’re going to encounter a chargeback. In fact, it’s likely you already have. You probably also know (too well) that chargebacks are easy for a cardholder to request from their bank, but they are a huge pain for merchants.
The process of resolving a chargeback largely depends on which payment processor you use. At Schedulicity, we offer both Square and Stripe integrations as well as our built-in product, Schedulicity Pay.
For Square and Stripe, you’ll need to reach out to their support teams for help. If you use Schedulicity Pay, we have a dedicated team who will help you navigate the credit card chargeback process. We’ve read all of the documentation and instructions from the card brands (Visa, MasterCard, etc.) and are here to help you understand what chargebacks are, what your role in the process is, and how to avoid liability. You can read all about how we recommend addressing chargebacks here — or reach out to our team at email@example.com.
How to Prevent Chargebacks from Happening
The more you know about chargebacks, the better you can protect your business from them — especially the “easily preventable” ones. Here are a few of the most common missteps we see.
1. Be Crystal Clear About Your No-Show Fees
No-shows can deeply affect your bottom line, so it makes total sense to require deposits or pre-payments and/or implement a no-show fee that you automatically charge to a card on file if someone doesn’t turn up.
But the last thing you want to do is surprise a client with a charge they’re not expecting. You can solve most of these miscommunications using a few simple techniques:
- Make your no-show, deposit, and prepayment policies as clear as possible. Include them in your Schedulicity business listing as well as your policy email for clients. Depending on your industry, you may also want to write it into a form or waiver that new clients sign.
- Send clients text or email reminders about their upcoming appointments, so they’re less likely to miss them. (We have an automated reminder add-on that does that for you!)
- Go over your policies with new clients in person. It doesn’t have to be a formal process — it could be as simple as saying, “I do automatically charge a no-show fee if someone misses an appointment, but I’m super flexible about my cancellations. If you ever run into trouble, just text me and we’ll work it out!”
2. Make Sure Your Business Name Is Obvious on Their Credit Card Statements
Ever looked at your card statement and thought: What is this?! We sure have, and it’s usually because you don’t recognize the company name. More often than not, it’s just the gas station down the street that happens to have a mysterious business name on statements.
This is an easy, easy thing to fix! To make sure your business name looks exactly how you want, you’ll need to work with your payment processor (it varies from company to company). For Schedulicity Pay users, if you would like to update your business name, reach out to firstname.lastname@example.org, and we’d be happy to get that started.
3. Let Regulars Know You’re Always Happy to Chat Through Any Issues with Pricing / Charges
Things happen. One of the best ways to prevent clients from calling their bank is to make sure they know you’re always willing to work through any issues with them. That’s true of everything, from encouraging them to reach out if they’re unhappy with a service to telling them to text you if they have any questions about an automatic charge (common if you offer monthly memberships or package deals). The more comfortable they are talking openly with you, the less likely they will be to avoid a confrontation by filing a chargeback instead.
4. Keep Your Information, Policies, and Payment Processing Reports Organized
In the event of a chargeback issue, you’re going to need to submit information about why the charge took place. Make sure it’s easy for you to pull together everything you need.
One reason we launched Schedulicity Pay was that we realized that life is so much easier when all your business tools are in one place. With Pay, you can easily pull documentation on the charges, your no-show policies, etc. from a single account.
5. Don’t Ignore Chargeback Notifications
When you get a scary email from the “Retrieval & Chargeback Department” notifying you that you’ve received a chargeback and will be charged a fee (again, $15-$30 or more depending on payment processor — our Schedulicity Pay partner, Clearent, charges $15), it’s tempting to immediately close out of your inbox and go for happy hour.
Don’t do it. Here’s why not:
Ignoring chargebacks can hurt your business credit in the long run.
If you ever decide to switch processors or if you’re looking for business capital, the number of chargebacks and disputes your business has will be taken into consideration by banks and underwriters.
And yes, disputing matters.
Banks tend to view a business that doesn’t dispute chargebacks as admitting guilt.
Beyond losing revenue, ignoring a chargeback can actually contribute to fraud.
According to Chargebacks 911, you’re “also tacitly encouraging the fraudulent behavior. In fact, with friendly fraud cases that are not challenged through re-presentment, nearly half of the offenders will file another illegitimate chargeback within 90 days.”
The longer you ignore it, the longer you have to wait to get those funds back.
Schedulicity Pay expert, Kristi Burk, suggests you think of it this way, “When two kids are fighting over the same ball on the playground, the teacher takes it away until each one can tell their side of the story and the teacher can decide who it belongs to. That’s kinda like a chargeback. The funds are taken away from everyone and held until they can figure out who it belongs to.”
So, respond to all chargeback emails or letters in a timely manner and submit all the documentation your institution requests, plus any additional supplemental evidence that you think will help. The more responsive you are when addressing chargebacks, the more likely you are to win the dispute, the sooner you get that money back, and the safer your financial reputation is.
Remember: Our team can help you!
That doesn’t change the fact that chargeback emails are chock full of financial jargon and legalese. Believe us, we know. If you use Schedulicity Pay, you don’t need to go through it alone. Sign up for Schedulicity today to get scheduling and payment in one place. If you’re already a Schedulicity Pay user, reach out to our team (email@example.com) about your chargeback email, and we’ll help guide you through what to do next.
Chargebacks 101 via Square