“What do you mean they’re disputing the charge? They signed a contract!”
Chances are you’ve been in this circumstance before. One of your customers has contacted their bank to dispute a charge. It can seem like an invasion on your bank account, causing unneeded work and aggravation on your part to settle the situation. Fortunately, there are ways to minimize payment disputes. Let’s talk about payment disputes, why we get them, and how to prevent them.
Why Do Chargebacks Occur?
A chargeback occurs when a cardholder contacts their credit card-issuing bank and asks for a refund on a transaction for a purchase or service made on their card. There are a variety of reasons a customer will charge back a payment. Here are the most common:
- The customer doesn’t recognize the charge
- The customer claims that they cancelled services
- The customer didn’t receive a credit
- The customer claims fraudulent charges (stolen card)
- The customer is unhappy with the service or purchase
It’s important to note that consumers have the right to charge back payment when they believe there has been fraud or a product has not been delivered as specified. The Fair Credit Billing Act defines the rules for credit card fraud and billing disputes here in the US. However, disliking a product or being unhappy with the merchant or product does not give the customer the right to charge back a payment through the bank.
Chargebacks are a great tool in the consumers’ hand. As a merchant, we give this power to the consumer when we don’t clearly state the return policy, cancellation policy, or identify ourselves to the customer—which brings us to some tips to prevent chargebacks.
Tips to Prevent Chargebacks from Happening in the First Place
Protecting yourself from chargebacks can be tricky. However, the best defense is the best offense. Put these best practices in place to prevent chargebacks from occurring:
- Provide the customer with the name and phone number of your company so that they recognize your charge. This is the first reason you may receive a chargeback.
- Have your return/cancellation policy clearly stated on the contract and on your website.
- Provide accurate descriptions of your services.
- Get authorization for your charges with a valid signature.
- Keep your contracts and agreements updated.
- Credit cards should always be valid. When possible, get a signature when customers update their cards.
- Get a signed proof of delivery for products.
- Talk to your customers to resolve issues before they talk to the bank. That personal touch can go a long way in dealing with and preventing chargebacks.
So You Received a Payment Dispute. Now What?
Chargebacks are unfortunately something every small business owner faces at one time or another. So let’s look at what to do when you receive one.
The lifecycle of a chargeback can start two different ways.
In the event that you receive an inquiry/dispute or “retrieval,” you still have a chance to avoid the chargeback. Disputes are most likely from a customer not recognizing the transaction on their credit card statement. In an ideal world, customers call the number that is associated with the transaction to determine the merchant, but in many cases, this does not happen.
If you receive an inquiry, retrieval or dispute, immediately respond with a signed contract or agreement confirming the charge. In most dispute cases, the transaction is confirmed, the bank is satisfied, and no further action is needed.
How Does Your Billing Company Handle Chargebacks?
If you’re a Member Solutions billing client, we handle the chargebacks for you.
Here’s the process:
When we receive an online request from the credit card company, we look up the customer account to see if we have a contract on file. If we do, it is immediately sent to the credit card company with an explanation of who is billing the customer. If we don’t hear back from the credit card company, it means they accepted our documentation and the case is closed.
On some occasions, credit card companies ask for further documentation or clarification. We contact you, the merchant, if necessary. If these steps are not taken in a timely manner, the dispute will most likely become a chargeback.
If the customer claims the transaction is a fraud or that they canceled the services or product, the bank will issue an immediate chargeback with a chargeback fee of (in most cases) $25.
However, we, at Member Solutions, still respond immediately with an explanation of the charge and a signed authorized contract or agreement showing the valid transaction. It can take up to 45 days before we know if the bank will send a chargeback reversal. A chargeback reversal is when the bank agrees with our documentation and gives back the money.
There are, of course, instances of true fraud. In those cases, that money will be lost. We sometimes receive a chargeback reversal, and in another 45 days, the bank will send a second chargeback. This means the customer and/or bank has decided that the charge is invalid and that decision is final. We must then take the money from the merchant account. At that point, the case is closed.
This, of course, isn’t what any of us want to see happen. Your best action is to be clear with your customers about their contract and services—and keep in constant contact to make sure that the customers are satisfied.
What’s an ACH/EFT Chargeback?
It’s important to know that there is another kind of chargeback: an ACH/EFT chargeback. ACH/EFT stands for Automated Clearing House/Electronic Funds Transfer. Automated Clearing House is an electronic banking network used for direct deposit and electronic bill payment.
In the case of an ACH/EFT chargeback, the consumer notifies their bank that a payment initiated by a merchant is not authorized. In most cases of ACH disputes, Member Solutions receives a request from the bank telling us a customer is disputing their ACH/EFT payment from their checking or savings account.
What Happens When You Receive an ACH/EFT Chargeback?
The merchant has 14 days to respond with a signed contract or agreement stating that this payment is valid. The burden of proof is with the merchant to prove the customer signed an agreement authorizing them to debit the customer’s account.
Again, if you’re billing with Member Solutions, we send the bank a copy of the contract or agreement with the checking account or savings account information with a signature in hopes that the bank is satisfied with the proof we have provided.
In most cases, this will save a chargeback. If there is no proof sent in the 14 days, the payment will be charged back. This is just another reason for why it is important to establish that relationship with your customer.
Make Sure Your Membership Agreements Contain Important Information
Your membership contracts or agreements should show the cardholder’s name, address, and phone number. It also needs clear contract terms and a concise cancellation/refund policy. Be sure you have an authorized cardholder signature—and at a minimum—the last four digits visible of the credit card number that is tied to the disputed charge. These things make a successful attempt at avoiding a chargeback.
As always, we’re here to help. If you would like more information about the chargeback process or have any questions, please don’t hesitate to contact Member Solutions Client Services at 888.277.4407. We’re happy to assist you.
Good luck and strive to be chargeback free!
About the author: Ursula Carter is the Finance Manager at Member Solutions. Her experience includes an exclusive two-year focus on chargeback management, where she worked with credit card companies and individual merchants to prevent payment disputes and resolve chargebacks. As Finance Manager, Ursula assumes direct responsibility for the day-to-day billing operations, which includes ensuring the correct system functions for all billing-related processes, and working with appropriate personnel to correct system issues, client interaction, payments, and client funding.