What Is a Chargeback and What Do They Mean for Business Owners?

American Express Business card

Chargebacks protect consumer interests by allowing customers to receive a credit card refund on fraudulent transaction amounts or insufficient purchases. An example of an insufficient purchase might be a missing delivery or an item that is damaged.

All credit card chargebacks begin when a customer disputes a charge. The initial dispute may result in a merchant refund instead of a chargeback. Merchant refunds involve a business directly refunding a customer. Chargebacks consist of a refund from the consumer’s card issuer when a merchant refund isn’t met.

Customers appreciate having different payment methods at their disposal. Automated clearing house (ACH) payments are a payment option that modern merchants commonly utilize. Let’s take a closer look at what ACH disputes are and how they differ from credit card chargebacks.

ACH Disputes vs. Credit Cardholder Disputes

ACH payments run through an electronic network consisting of participating financial institutions. It helps to visualize ACH transactions like direct deposit payments from one bank to another. Merchants use many different three-letter codes to represent specific ACH transactions. The ACH similarly offers several return codes that reverse previous payments. Customers tend to have between 90-120 days to dispute an ACH transaction. Most consumers filing a chargeback begin the process 60-120 days after their initial purchase.

It’s essential to know that ACH disputes are never referred to as chargebacks. ACH returns are the standard terminology for ACH-related disputes. Chargebacks are reserved for the credit card industry.

Understanding the fine details associated with chargebacks can help merchants protect their customer’s interests as well as their own.

Chargeback Dispute Meaning: What Merchants Need to Know

Chargebacks often spell bad news for merchants, as they incur a fee of $20-100 per transaction on average. A merchant that racks up too many chargebacks can experience a raise in their per-transaction costs or an account shutdown. Companies have 45 days to fight a chargeback. Merchants that initiate a chargeback dispute process will have their bank investigate the case.

It’s rarer for a merchant’s bank to deem a customer’s chargeback invalid. Valid chargebacks will result in a customer receiving a return of their funds from the merchant’s bank before the merchant’s fee charge.

How Merchants Can Avoid the Need to Dispute a Chargeback

The best way for merchants to avoid chargebacks is to follow guidelines and policies established by payment processing networks. Different card networks like Visa and American Express will have varied guidelines.

Here’s a quick rundown of some additional ways merchants can avoid credit card chargebacks:

  • Have your customer verify purchases with a signature.
  • Write the name of your business legibly on a bill.
  • Only accept credit cards with a signature on the card’s back.
  • Compare digital signatures with card signatures.
  • Follow current security standards (eg., EMV card support).
  • Verify customer identification to avoid fraudulent charges.
  • Check a customer’s card expiration date.
  • Establish business practices that deter situations like friendly fraud.

Why Small Businesses Receive a Chargeback Fee per Incident

Are you wondering why merchants receive a chargeback fee per incident? Let’s explain.

Card companies undergoing a chargeback process go into their funds to return money to a consumer’s account. This action subsequently results in a bank retrieving the transaction’s funds from a merchant’s account. The same deal applies to chargebacks that come as a result of innocent mistakes. Merchants that win a chargeback investigation through compelling evidence often have to incur a research fee.

Below is an outline displaying what’s included within a chargeback fee:

  • Transaction processing fee
  • Business operation expenses
  • Acquiring bank fee
  • Merchant marketing costs
  • Larger chargeback ratio expenses

Keep reading to learn more about how merchants can improve their customer service with Adept Payment’s simplified credit card processing service that includes seamless integrations at the lowest possible cost.

How Adept Payments Can Handle Your Business’s Card Processing Needs

Adept Payments is here to help your business provide customers with payment options that accept all types of electronic transactions. Our company’s EMV Level 1- and 2-compliant readers support chip and magnetic stripe cards so your business can meet mandatory EMV POS equipment requirements. Effortless mobile sales processing is within arm’s reach when utilizing Adept Payment’s mobile solutions that seamlessly integrate iOS and Android devices.

The best part of all is you’ll be able to achieve these business practices at a fraction of your usual cost. Contact Adept Payments today at 888-732-3838, so we can offer you processing solutions that meet your business’s unique needs.

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