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How do you manage and prevent Paybacks, Chargebacks, or Disputes

Jan 17, 2023

When you run an online business when you sell something, and then receive a demand notice. It usually occurs weeks even months after the first sale. Now you've got administrative work to handle as well as the chance of losing the revenue from the sale, and you'll have less time for the running of your company.

Although this can be rare, if it happens on a regular basis major partners like credit card companies could start to charge fines, enforce more stringent rules or end ties with your company.

Good news is the proactive approach to stop disputes from happening and to manage those that do arise can keep your business free from headaches. Even better news? There is everything you need to know in this article.

Table of Contents

What is a dispute? What are chargesbacks?

Payment disputes can occur whenever a customer contacts the credit card company they use to contest a charge in their bill. The credit card company takes these concerns seriously, and in the event that they decide that the cause of the dispute is legitimate and they'll issue a pro forma credit to the customer's account until the issue is settled. This can also be referred to as charging back.

Why do chargebacks and disputes occur?

There are two primary causes of payment disputes:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll dive deeper into both some time later.

From the first look, you would think you'd have much more control over the first one than the second. The truth is, you have some control over both, as you're about to see.

How merchants should react to dispute

Payday debts aren't something you just can put off and hope that they disappear out of your life. They will not. By ignoring them, you'll create problems that can impact the long-term viability of your shop.

Card networks track your rate of dispute (the proportion of transactions that are confirmed to disputed ones) and may charge higher fees or issue penalties in the event that your rate is not favorable.

What to do when you get a chargeback

This is what you should do when you get a notice of a payment dispute notification:

Take action promptly

If the network of your credit card begins with an inquiry, you must respond as quickly as possible. If you're using Pays and you're a member of the Payments network, you'll be informed of any disputes through email and an inbox notification on the dashboard.

A lack of response within an extremely short period of time leads them to presume you're not planning to dispute the issue. Every credit card has its own timeframe for how long an inquiry into a dispute remains open. However, you'll need to be careful in gathering evidence prior to providing the required evidence prior to the deadline runs out.

If you're using PayPal, you'll be able to log in easily the store's dashboard and respond to the complaint.

dispute response in Payments

Provide documentation

Next, provide clear and compelling evidence about the particular transaction. The evidence should include the credit card number (or the truncated version), the date and amount of the transaction, and the order information or evidence of delivery you have in your file.

This helps them rule out the possibility of fraud, and ensures that everyone has the same knowledge of the situation.

Submit requested evidence

In addition to the basic documentation, the card network could request additional details regarding the transaction. If they don't, you should send it anyway. The time spent gathering the necessary documentation will be well-spent, but make sure you've submitted all the information before the deadline.

The type of documentation you send will depend on the kind of payment dispute you're facing. There are at least seven types of payment disputes:

  1. Refund wasn't processed
  2. Multiple charges
  3. Fraudulent charges
  4. Charges that are not recognized
  5. Product not received
  6. Product unacceptable
  7. Subscription canceled

What happens if you fail to respond to chargebacks?

Chargebacks might seem intimidating or challenging to manage. However, it's an important aspect of managing a business and following some simple steps could save you from a lot of stress. Credit card companies want you to be successful in protecting their clients so you must follow the guidelines to keep a solid reputation.

If you choose to totally disregard chargebacks however the situation can get complicated. This is the sequence of unchecked or unchecked chargebacks

First, you lose the profit and the revenue from the sale and have to be charged a cost on top of that loss.

If your disputes start to accumulate and you aren't able to maintain control of them the card company could levy more fines and additional fees until you can bring the chargeback percentage down. If the problem persists, you might be restricted to accessing certain portions of your revenue from sales. Finally, they can eventually stop allowing payments, and mark your account as high-risk.

It could stop other card networks from wanting to do business with your company. And if you can't accept transactions online, you won't be able to manage your business properly.

This, of course, is a rare instance. You can completely avoid it if make the proper steps.

What is a threshold of dispute?

The dispute threshold, or chargeback threshold is the threshold that credit the card networks employ to help in deciding when to raise monitoring and penalities on businesses or merchants in order to decrease the rate of disputes.

What's a dispute rate?

The 'dispute rate' measures the amount of disputes that are disputed for all transactions processed in an allotted time for example, a week. For example, if there were 500 payments processed in a week and five of them were disputed that would give you a 1% dispute rate for that week.

This is distinct from 'dispute activity', which is the percentage of disputes that occur in a given time period regardless of the date for processing.

It's the difference that disputes do not occur for a period of time following the purchase. This is what dispute activity incorporates. There could be five disputes within a week, but if 3 of those relate to purchases which were made before that week, then the rate of dispute would include the two from this week. However, your activity in dispute would be all five. Here is more about the work of Stripe about calculating the number of disputes.

chart of dispute activity

Credit card networks typically use the activity of disputes to determine their dispute thresholds. Each card network is governed by its own set of thresholds. The threshold can be determined calculated based on disputes activity and volume of disputes and, more often, both.

For instance, Visa will increase their penalty against businesses that have more than 100 chargebacks a month and 0.9% dispute activity. However, Mastercard's threshold for disputes starts at 1.5 1.5%.

The number of payments is beneficial for smaller businesses since even if you receive only fifty payments during a month, and just one of them gets disputed and you're at a 2percent rate. The volume threshold helps keep smaller businesses away from the greater penalty.

If you're using Payments and you have any questions regarding how best to deal with dispute resolution, don't hesitate to reach out to the Support team to get help.

How can I lower my online store's dispute rate?

If you are now aware of how disputes are made Here are some ways to help lower the number of disputes you have to resolve.

1. Use a clear bank statement descriptor

An explicit statement description informs your customers of the place they purchased an item. This can help reduce the number of the risk of disputes arising from unrecognized fees. Your information will be visible to them and they'll be aware that it's a legitimate purchase they wanted to make.

descriptor statement examples

And if a customer notices the charge on their bill and is puzzled by the charge, they may call us directly instead of filing a dispute to their credit card provider, and you can resolve it through the credit card company.

2. Put company info on invoices for transactions

For the same reason as the descriptor for banks, providing customers easy-to-read and accurate details about their company on their receipts increases the chance that they'll call you if there's a problem instead of the credit card business.

Include your company name, location, contact information including logo, website address as well as a note about the customer service. And be sure this doesn't affect the details of your transaction in the receipt.

3. Resolve customer complaints quickly and seek solutions

Keep in mind that there are at minimum seven causes of chargebacks. A lot of these can be solved prior to getting to the dispute stage by providing good customer service.

When a client complains about the product's quality, the quality of it, any damage that occurred during delivery, or other issues, you should listen to them and work together to resolve the problem and avoid the possibility of a chargeback.

4. Make contact prior to fulfilling any an order that appears to be suspicious.

This is one of your most effective tools for preventing fraud. As a savvy business proprietor, you need to check your order for any indication of fraud or risk.

If you do not receive any response, particularly after repeated attempts, or if your phone number appears to be incorrect, you may want to consider refunding your purchase without sending it.

Many other processors provide the possibility of a fraud detection metric, but they're not always as easy to use. With Payments, it's right there next to each transaction. It's not necessary to wait in a waiting room at your credit card provider all entire day.

5. Make sure you have the proof of delivery

Whenever possible, this is a solid piece of evidence you can use in cases in which a buyer claims that their order never arrived. Examples include, shipment tracking details, requiring the delivery person to sign for it, taking a photo of the item that was delivered and so on...

6. Clearly state policies

Your policy regarding return, refunds, and cancellations matter for your clients. Include them on your invoices or receipts. Include them on your most important website pageslike the checkout page. Display them in store display. It's even better when you ask the customer to sign or acknowledge the fact that they accept the terms of your offer.

7. Use accurate product descriptions

The descriptions of the product must match the item. When a cardholder receives something not the product they were expecting, they may contest the amount because they'll think you sent them the wrong item.

Details matter. Don't skimp.

8. Get rid of items that are discontinued or no longer available.

Remove items from your online shop that are no more accessible so that buyers don't need to purchase an item they'll never get. You might consider doing the same thing for items that are not in stock, provided you can easily and accurately include an 'out of stock' image on your product's pages, and keep up with it as the status shifts.

out of stock settings in

9. Be wary of international purchases

Certain types of fraud can be a reality this day and age, and orders from some regions may pose a higher chance of being a victim. It is recommended to select a payment solution that includes fraud detection to help mitigate the chance of this happening, like Payments.

10. Gather as much information from customers as is possible

There are many businesses that do not need to have shipping data however, it is a good idea to collect it. It helps confirm that a person who is a cardholder is indeed who they say they are.

In every transaction, you need the following information:

  • Name of the customer
  • Customer email
  • CVC number that appears on the card
  • Full billing address and postcode
  • Shipping address, if differs from the billing address

11. Provide tracking details for the shipment

It is important to be prompt when you do This. After a customer orders the item, they will receive an email with the tracking info whenever possible. Following that, they will get periodic notifications. This is a good way to prove when a client claims that they never received the item.

Strengthen your defenses against fraudulent charges

Do you want to enhance the detection of fraud? It's only one advantage of using Payments, which helps online businesses accept payments and protect their image and increase profit.