Chargeback Prevention
Here are 10 ways to lower the hassle and expense of chargebacks:
Mail, phone and internet transactions
Card Not Present transactions like Mail Order Telephone Order (MO/TO) and Internet transactions are subject to more frequent chargebacks. You can the risk of chargebacks for fraudulent or unauthorized transactions by these steps:
- Negative Database — Maintain a database of problem customers. In this database you can document high-risk transactions, block specific credit card numbers and prevent future purchases.
- Multiple Orders — You can reduce potential fraudulent activities if you limit the amount of transactions from a specific customer per hour, day or week.
- Address Verification Service (AVS) — AVS is a service limits fraud by allowing you to verify a cardholder’s address prior to completing the transaction. The AVS system compares the address in the card issuer's database to verify if there is a full, partial or no match response on the address.
- Know Your Customers — Getting to know your customers can help prevent chargebacks. You can request the customer’s telephone number, then call back to verify the order.
- Customer Service Phone Number — Printing your customer service phone number on the receipts can help your customers know who to contact to resolve disputes.
- CVV2/CVC2 — Both Visa and MasterCard have this security feature printed on the back of their cards. You can verify this number to provide an additional security check. Our Customer Service can provide more information on this feature.
Manual imprint and signature
You must obtain a manual imprint of the card when you are unable to swipe a card through your point-of-sale terminal. Included on the manual sales slip should be the customer’s signature, transaction date, authorization code, purchase amount and merchant information. The following chargebacks can occur if you fail to obtain a complete copy:
- Fraudulent transaction — no cardholder authorization
- Fraudulent transaction — card present
- Fraudulent transaction — card not present
Requests for Transaction Copies
A retrieval request is a request from the issuer to provide a copy of the transaction receipt on behalf of the cardholder. You must respond to a retrieval request promptly. If you do not, it may result in one of the following chargebacks:
- Non-receipt of requested item
- Requested copy illegible
You may be stuck with an irreversible chargeback if you fail to respond to a retrieval request. You should respond by fax or overnight mail.
To lower the amount of retrieval request chargebacks:
- Keep a record of your sales drafts — Retrieval requests only specify the credit card number, transaction date and purchase amount, but they do not include the cardholder’s name. The best way to file your sales drafts is by date or credit card number.
- Be sure sales drafts are legible — An illegible copy (hard to read) will not be properly processed. Be sure your ink cartridge is good on your printer.
- Make transactions easy to identify — Customers may question or dispute transactions that they do not recognize on their billing statement. One way to eliminate many of these retrieval requests is to send a purchase confirmation to the cardholder’s address identifying the information that will appear on the cardholder’s statement.
- Put your customer service number on the cardholder statement — You should have your business phone number appear on the cardholder statement in the city/state field. This allows the customer to contact you directly when they have questions about the transaction. Please contact Customer Service to have this feature set up.
Credit/Refunds
You should quickly process refunds to your customers to prevent Credit Not Processed chargebacks. Your cancellation or refund policy should always be explained to the customer in writing. A few ways to be sure of this:
- Clearly print your refund/cancellation policy on the transaction receipt close to where the customers signs.
- When using a website to sell services/merchandise, your refund/cancellation policy should be on your check-out screen with an I agree button that the customer must click on prior to completing the transaction.
- If your policy is that you do not give refunds or offer in-store credit only, you should include this information right on the receipt.
- You can only issue refunds using the same credit card as used in the original sale.
- Never issue a refund in cash or check when a purchase has been made with a card.
Duplicate Transactions
Some ways to avoid Duplicate Processing chargebacks:
- Process only one transaction at a time through your point-of sale terminal.
- At the end of the day, balance your deposits.
- If your customer makes multiple purchases in the same day or makes purchases with a duplicate amount, be sure to issue a separate invoice detailing each purchase.
- Check your batch totals at the end of every shift or business day to make sure there were no duplicate charges to the same customer.
- If a customer was in fact charged twice in error, immediately credit the cardholder’s account.
Recurring Transactions
When a customer requests a cancellation of a recurring transaction, you must take immediate action or you could have a Cancelled Recurring Transaction chargebacks. This action must be prompt to reduce the risk of repetitive chargebacks by the same customer.
Merchandise or Service Not Received by Cardholder
A Non-receipt of Merchandise chargeback may occur when merchandise or services are not delivered to a customer. You must deliver the goods and services before you charge the customer. The way to avoid this type of chargeback is by obtaining proof of delivery for all merchandise or services not immediately delivered with the customers signature. Some helpful hints:
- Installment Transaction — Clearly explain the details of installment transactions in writing, including shipping, handling charges and taxes. If currency conversion rates will cause the installment amounts to vary, you must inform your customer of this. Merchants are prohibited from including finance charges in the installments.
- Installment Intervals — The first installment transaction should not be processed before you ship the goods. At minimum, follow the 30-calendar-day rule, or the same date each month corresponding to the shipping date to process installments
- Delayed Delivery — The only way you can process delayed delivery transactions before delivery of the goods or service is you clearly describe the sale as delayed delivery on the transaction receipt. Do not process a deposit or a balance transaction receipt before you deliver the goods or service.
- Prepayment — You may only process a prepayment transaction if you advise your customer of the fact that he or she will be billed immediately. You may process a full prepayment for custom-order merchandise that is manufactured to the customer’s specifications.
Authorization Procedures
When the card issuer does not approve a transaction, you will be issued a decline code. Never re-attempt to authorize the same card by lower the amount requested or simply repeating the same request. When a decline code is issued, give the card back to the customer and request an alternative form of payment.
If you become suspicious during a transaction, call your voice authorization center and request a Code 10 authorization. The operator should ask you a series of yes or no questions that will not alert the cardholder. The operator will then tell you how to proceed with the transaction.
Cardholder Disputes Quality of Merchandise/Service
It is hard to overcome a dispute from a customer who is not satisfied with your merchandise or service. Such disputes can result in the following chargebacks:
- Merchandise/Service not as described
- Cardholder dispute - not elsewhere classified
- Defective merchandise
If a customer disputes a transaction, attempt to come to a resolution with the customer directly and keep detailed notes of your efforts to please the customer. You may need to use this documentation as proof of your response to the customer's dispute, so be sure to keep accurate records of each transaction.
Here are a few more ways to avoid such chargebacks:
- When shipping good, be sure to package them properly
- Be sure to provide proper goods as advertised
- Make sure your customer knows exactly how to return merchandise that they are not satisfied with
- Inform your customers of your return policy at the time of purchase.
- Clearly post the policy at the point of sale and print it on the sales receipt close to where they sign
- Consistently follow your return policy
Account Numbers Don’t Match
After swiping the card, make sure the number on the card and the account number on the screen are the same. Print the full account number on all phone and mail orders. Ask phone customers to repeat the card number back to you to ensure you entered it correctly. Transactions with numbers that do not match can result in the following chargebacks:
- Account number not on file
- Non-matching account number
FAQs regarding chargebacks:
What is the timeframe that a customer has to dispute a charge?
Certain circumstances may cause the time to be longer or shorter. However, the time frame for the majority of disputes is 120 days for U.S. transactions and 180 days for international transactions the date of the original sale or the date of discovery of the issue, such as defective merchandise.
Why was I charged a fee when the transaction is valid?
The chargeback fee covers the cost for processing the chargeback. This fee is charged no matter what the reason, whether valid or not. For this reason, you want to be pro-active to prevent customer disputes in the first place.
Does an approval code protect me from chargeback fees?
No. An authorization code only verifies that the cardholder's account is in good standing, the card has not been reported lost or stolen at the time of the transaction, and the card has sufficient funds available for the amount of the transaction you are attempting to process.
Will the chargeback documents include the cardholder's name?
Most issuing banks do not provide a cardholder name to the merchant. The cardholder name could possibly be somewhere in the documentation of the chargeback reason code, but not all reason codes have accompanying documentation. A copy request or retrieval will never include a cardholder's name.
Can I charge a cardholder for loss, theft, or damage?
Both Visa® and MasterCard® Regulations indicate that amended charges must be processed as a separate transaction. Also, these charges must be authorized by the cardholder after they are informed of the loss, theft, or damage.
Will I receive an approval code if there is a negative AVS or CVV response?
AVS and CVV are simply tools designed to help you make the best possible decision whether or not to accept a transaction. If the CVV/CVC or AVS code does not match the card, there is a possibility of fraud. Even if you receive an authorization code, you should review the entire transaction to decide if you want to continue with the transaction.
How can I receive a chargeback for an Invalid Card Number even though I received an authorization code?
If the first six digits of a card are valid, an authorization code can be granted because the system will authorize the transaction in the place of the issuer, especially on smaller transactions. The first six digits only identify the bank that issued the card account.
Is it sufficient to simply post my return/cancellation policy in my store?
No. Visa and MasterCard’s have specific guidelines for disclosing your return/cancellation policy. Here are a few of them:
- The cardholder must have acknowledged the policy by signing or initialing the policy. You cannot just post the information and expect the customer to have read it. Their signature provides proof that the customer has read and agreed to your return/cancellation policy.
- If you are a retail merchant, you must have the policy printed on the sales receipt below the signature line and with at least 1/4 inch size font.
- If you are an e-commerce merchant, you must place your policy on your website and the cardholder must click to agree to the terms & conditions during the checkout process.
How long does it take to get an answer to Arbitration, Compliance, and Good Faith?
Visa/MasterCard give specific time frames for each step in the process. The purpose of this is to give the merchant’s processor and the cardholder’s bank the time they need to gather and submit appropriate documentation for each case. However, the amount of time it takes for Visa or MasterCard to make a ruling is not affected by GPS or the issuing bank. Visa or MasterCard do not set time frames for Good Faith collection responses because they are not decided by them.
Why was I not notified before my account was debited?
An automatic debit is issued whenever a chargeback is initiated by the card issuing bank. This debit is passed on to you as long as the issuer has followed all of the proper steps associated with the particular reason code they used to issue the chargeback. These details are in your merchant agreement and the terms of service which you signed and/or received when you opened up your account.
Are you taking the cardholder’s side without getting information from me?
No, GPS does not deal with any cardholder who disputes charges. We represent you, the merchant, and assists you in providing the correct information to help you with the disputes you receive. Our goal is to get a resolution that favors you. However, you must comply with all the Visa and MasterCard rules and regulations regarding chargebacks.
How can I prevent chargebacks on special order items if a customer decides later they do not want the item?
The best way to prevent this is to have the cardholder sign all transactions with the cancellation/return policy clearly printed on the receipt. You should also do everything possible to fulfill the customer’s expectations early on in the transaction, document what you've done, and work directly with the cardholder when any conflicts or disputes come up.