According to a recent survey, more than 40% of Americans say they don’t pay for anything with cash during the average week. The U.S. is slowly turning into a “cashless” economy that relies heavily on debit and credit cards.
If you run a small business that doesn’t take debit or credit cards yet, you’re going to want to change that as quickly as you can. You might be missing out on making a lot of money every year by not accepting debit and credit card payments.
You’ll also need to learn the answers to questions like, “What are chargebacks?” From the moment you start taking debit and credit cards, you’ll also be at risk for a chargeback from a customer.
So, what are chargebacks? What can lead to a credit card chargeback? And how you can stop chargebacks from taking a toll on your business?
Discover what you need to know about chargebacks below.
What Are Chargebacks?
Chargebacks can technically be considered refunds that merchants provide to their customers. But more often than not, these chargebacks are initiated by customers without merchants even knowing about it.
These chargebacks take place after charges have been accepted by merchants and fully processed. At some point, customers will contact their debit or credit card companies about these charges and put in disputes about them. If debit and credit card companies agree that customers should not have been charged by merchants, they’ll approve chargebacks to help them get their money back.
It can take several days for chargebacks to go through so that customers can receive their money. But generally speaking, it’s fairly simple for customers to ask for chargebacks when they feel as though merchants wrongly charged them for one reason or another.
Why Do Chargebacks Occur?
As more Americans have started to use debit and credit cards on a regular basis as opposed to paying for things with cash, the number of chargebacks in the U.S. has increased in recent years. But it’s worth noting that not all chargebacks are created equal.
Chargebacks occur for a variety of reasons all across the country each year. You should be aware of why they occur so that you can aim to avoid encountering too many chargebacks in the weeks, months, and years to come.
Here are some of the most common reasons why people will initiate chargebacks and ask their debit and credit card companies to help them get their money back:
Merchant Fails to Provide Customer With Products
When a customer pays a merchant for products, they obviously expect to receive these products either right away in person or within a matter of a few days once they’ve been shipped. But this isn’t always how things work out.
In some cases, merchants fail to ship products to their customers in a timely fashion because of supply chain problems. In other instances, merchants will simply not ship products to their customers in an attempt to rip them off. A high-risk business might engage in activities like this.
Either way, customers can initiate chargebacks when they’re not able to get their hands on the products they paid merchants for. As long as merchants aren’t able to prove that these customers did, in fact, get their products, customers should be in the clear when it comes to having chargebacks approved.
Merchant Accidentally Charges Customer Twice
Debit and credit card processing has become easier than ever before for most merchants in this country. The chances of them accidentally charging customers twice are slim to none.
But every so often, a merchant will accidentally charge a customer twice for the same product. A customer is welcome to call a merchant or stop by to see them to explain the situation and to try to get their money back. But they might also have to start the chargeback process in certain cases.
If, for example, a merchant disputes the fact that they charged a customer twice, a customer might not have any choice but to request a chargeback through a debit or credit card company.
Merchant Charges Customer Too Much Due to Technical Issues
There are times when the debit and credit card processing system that a merchant is using might malfunction and charge a customer the wrong amount. It’s another instance in which a customer will be able to ask for a chargeback to occur through their debit or credit card company.
As a merchant, it’s important for you to utilize the best debit and credit card processing system around to avoid finding yourself in this scenario. A company like Zenti can set you up with one of the best processing systems around while also giving you access to an amazing reward program that you’ll really come to appreciate.
Customer Claims Fraud Led to Purchase Through Merchant
Arguably the most common cause of chargebacks is fraud. There are people who have their debit and credit card information stolen and used every single day in this country.
In the case of fraud, a merchant and a customer usually won’t be able to come to terms on how to settle things. Neither side is going to want to have to bite the bullet and shoulder the cost that can come along with fraudulent activity.
Because of this, merchants and customers alike will usually agree to initiate chargebacks in this particular case. It’ll allow everyone to get their money back, and it’ll put the onus on banks and other financial institutions to figure out how they were able to get duped by fraudsters.
How Long Do People Have to Ask for Chargebacks?
If you’re a merchant, you’ll be happy to hear that your customers won’t be able to initiate chargebacks whenever they want. They’re only going to have about 60 days to initiate them if they feel as though they have a good enough reason to do it.
There are some financial institutions that will give people up to 120 days to initiate chargebacks. But they’re few and far between. You shouldn’t have to worry about getting hit with any chargebacks that are more than several months old.
Can You Fight Chargebacks?
When you find out that a customer has initiated a chargeback against your business, you might feel like you don’t have any power in the situation. But you’ll actually have up to 30 days in most cases to fight back against any chargebacks brought against you.
If you’re able to provide a financial institution with things like signed receipts that show a customer approved a purchase, you might be able to make a compelling case for yourself. It could stop a chargeback in its tracks and enable you to keep the money a customer paid you.
How Can Chargebacks Affect Your Business?
Chargebacks can impact your business in a handful of different ways. It’s why you’ll need to strive to avoid them as best you can.
First and foremost, chargebacks are going to eat into the profits that you think you’ve already made. It might not affect you too much if a customer initiates a chargeback for something that cost them less than $50. But it could take a huge toll on you if this chargeback is something that cost several hundreds or even thousands of dollars.
Chargebacks can also put you in a position where you’ll have to scramble to fight back against them. You might need to spend some of your precious time searching for receipts and other evidence that can help you dispute chargebacks.
In many cases, you’re also going to get charged a fee for any chargebacks that were your fault. It’ll make chargebacks an even bigger headache than they already were.
What Can You Do to Avoid Chargebacks?
Now that you know the answer to the question, “What are chargebacks?”, and understand how chargebacks work, you should try to avoid them. Here are several ways you can do it:
- See to it that all your customers get the products they order from you
- Be careful when you’re accepting debit and credit card payments and processing them through your system
- Work only with the best credit card processing company
You should also let your customers know that you would appreciate it if they would call you before initiating chargebacks. You might be able to work something out with them.
Steer Clear of Chargebacks at All Costs
As a small business owner, chargebacks will turn into the bane of your existence if you let them. They can throw your bookkeeping efforts into a state of disarray and make your profits lower than they should be.
After learning the answer to the question, “What are chargebacks?”, you should be able to start avoiding them from now on. You don’t have to let them get the best of you anymore.
Find more tips that’ll help you turn your business into a bigger success by browsing through our other blog articles.