The Thousand Solutions Blog

How do you manage and prevent the occurrence of Chargebacks and Payment Disputes

Jan 17, 2023

Sometimes, when running an online store it is possible to make a sale and then receive a demand notice. It usually occurs weeks sometimes even months later the purchase. You'll have administrative issues to do, the risk of losing the revenue from the sale, and lesser time to concentrate on managing your business.

Although this can be not a frequent occurrence however, if this happens frequently major partners like credit card companies could start to levy fines, impose tighter regulations, or even end ties with your company.

It's good to know that a proactive plan to prevent disputes and manage them when they do occur keeps your shop free of headaches. Even better news? There is all you require to know in this article.

Table of contents

What exactly are dispute or chargebacks?

The payment dispute can happen whenever a customer contacts their credit card company to dispute a charge on their bill. The credit card company takes these concerns seriously, and in the event that they find that the motive 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 a chargeback.

How come disputes and chargebacks occur?

There are two main causes of payment disputes:

  1. Dissatisfied customers
  2. Fraudulent card activity

We'll dive deeper into both in a little bit more time.

At first glance, you would think you'd have much more control over the first one than the other. In reality, you do have control over both of them, as you'll see.

Why merchants need to respond to disagreements

Payment disputes aren't something you just can put off and hope that they disappear off. They aren't going to go away. By ignoring them, you'll create problems that could affect the viability of your shop.

Credit card companies monitor your dispute rate (the ratio of verified transactions to disputes) and could charge more charges or impose penalties in the event that your rate is not favorable.

What do you do if encounter a dispute with a credit card

This is what you should do when you get a dispute with your payment notice:

Respond promptly

If your card company starts with an inquiry it is imperative to respond promptly. If you're using Payments, you'll be notified of any disputes through emails and an inbox message within the dashboard.

In the absence of a response in a fairly short amount of time makes them believe that you're not going to dispute the issue. Each card network has their individual timeframes to determine how long an inquiry into a dispute remains open. You'll need to carefully gather evidence while providing the required evidence prior to the timeframe runs out.

If you're using PayPal, you can easily log into the store's dashboard and respond to the complaint.

dispute response in Payments

Provide documentation

In the next step, give proof that is clear and convincing about the specific transaction. This should include the credit card's number (or the reduced version) as well as the date and value of the transaction, as well as any order details or proof of delivery that you keep in your file.

This information helps them rule out any fraud possibilities, and also ensure that all employees have an understanding of the situation.

Submit requested evidence

Apart from the normal documents, the network might ask for more information regarding the transaction. And even if they don't require it, it's best to provide it anyway. The time spent gathering all of the requested documents is well worth the time however, make sure that you've got everything in order and sent it prior to the deadline.

The type of documentation that you provide will be contingent upon the type of issue you're dealing with. There are at minimum seven different types of dispute over payment:

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

What happens if your company doesn't take action to chargebacks?

The concept of chargebacks may seem daunting or challenging to manage. But, they're an essential element of running a shop by following a few simple steps will save you lots of hassle. Credit card companies want your business to succeed while protecting their users, so work within the rules to ensure your good name.

If you decide to completely avoid chargebacks it can be difficult. Here's the progression of ignored or not checked chargebacks:

The first thing you do is lose income and profit from the sale. You also have to be charged a cost in addition to the loss.

After that, if your disputes start to accumulate and you fail to keep them under control the card company might impose more fines and more fees until you get your chargeback rate down. If your issue persists and you are unable to access your sales, they could block you from accessing portions of your sales revenue. In the end, they may cease allowing you to accept payments, and mark your account as high risk.

This could keep others from doing business with you. In addition, if you don't allow transactions online, you won't be able to really run your business.

It's true that this is a rare instance. It's totally preventable if you follow the correct actions.

What is a threshold of dispute?

The dispute threshold, or the chargeback threshold is the method that card networks use to help determine when they should increase monitoring and penalities on the business or a company to get them to reduce their dispute rate.

What's a dispute rate?

The "dispute ratio" is the number of disputes per transaction processed over a given time period, such as one week. In other words, if you have 500 transactions processed over the course of a week, and only five percent of them were challenged that would give you an average of 1% for the disputation rate for the week.

This is distinct from 'dispute activity' that measures the percent of disputes in the time frame regardless of the date for processing.

It's the difference that disputes do not occur for a period of time after the purchase. That's what the process of dispute incorporates. It is possible to have five disputes during a single week, but if three were related to purchases which were made before that week, then your dispute rate would only be the two that occurred during the week prior, but your dispute activity would include all five. This is more information about the work of Stripe on measuring the number of disputes.

chart of dispute activity

Credit card networks typically use dispute activity for their levels of dispute. Also, every card company has its own threshold. It could be dependent on the volume of disputes as well as the volume of dispute and, more often, both.

As an example, Visa will increase their charges against businesses with more than 100 chargebacks one month, and 0.9 percent dispute activity. However, Mastercard's threshold for disputes starts at 1.5%.

The number of payments is beneficial for small businesses, because if you only receive fifty payments during a month, and one gets denied the amount is already at 2% rate. So the volume threshold keeps smaller businesses away from the higher penalties.

If you're using Pays and are unsure of the best way to handle disputes, you can always contact the customer Customer Support Team for help.

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

Once you know how disputes work Here are some ways that can help you decrease the amount of disputes that you face.

1. Use a clear bank statement descriptor

A clear statement descriptor informs the buyers where they purchased an product. It can immediately help in resolving 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 intended to purchase.

descriptor statement examples

If a client notices the charge on their bill and is puzzled by the charge, they may call your number directly, rather than filing the dispute with the credit card provider, and you may be able to resolve the matter with them.

2. Add company details on invoices for transactions

For the same reason as the descriptor for banks, providing customers easy-to-read and accurate company information on their receipts increases chances that they'll contact you if there's a problem, rather than the credit business.

Include the name of your business along with your location, address, contact details including logo, website address along with a brief message on the customer service. Make sure that this does not affect the details of your transaction on the receipt.

3. Response to complaints from customers promptly and find solutions

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

If a customer complains about a product, its quality, damage during delivery, or other aspects, listen to them and collaborate together with them to fix the problem and avoid the possibility of a chargeback.

4. Initiate contact before fulfilling suspicious orders

This is one of your best tools to use against fraud. As a savvy business owner, it's important to examine your purchases in the event of any sign of fraud or danger.

If you do not receive any response, especially with repeated attempts, or if the phone number appears to be invalid, consider refunding the purchase without sending it.

Most other payment processors offer the possibility of a fraud detection measure, however they're not necessarily as user-friendly. When you use Payments, the metric is on top of each transaction. There's no need to sit in a waiting room at your credit card provider for half the entire day.

5. You must provide confirmation of delivery

If you can, this will be a solid piece of evidence that you could use in which a buyer claims that their item never came. Examples include, shipment tracking specifics, needing a signature upon delivery or taking a photograph of the final delivered item and so on...

6. It is imperative to clearly state the policy

Your policies about return, refunds, and cancellations affect your customers. to customers. Include them on the invoices or receipts you send out. Include them on your most important website pages, such as your checkout page. Display them in store display. It's even better to get the cardholder to confirm or sign the fact that they accept the terms of your offer.

7. Use accurate product descriptions

Descriptions of products must be in line with the actual product. If a customer receives a product that seems different from the product they were expecting, they may contest the charges because they'll believe that you shipped them the incorrect product.

Attention to detail is crucial. Don't skimp.

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

Eliminate items from your store that aren't available so customers can't order items they will not receive. Consider doing similar for products that are out of stock, unless you're able to quickly and easily add an out of stock' icon on the relevant product pages and update changing the status as it alters.

out of stock settings in

9. Take care when placing international orders

Certain kinds of frauds are an unfortunate reality in our day-to-day world ordering from specific locations could pose more chance of being a victim. It is recommended to select a payment solution that includes fraud prevention to minimize the risk of fraud, for instance payment processing.

10. As much information about your customers as is possible

Not every business needs to have shipping data, but get it anyway. This helps verify that a cardholder is who they say they are.

For every transaction, you need to know the following details:

  • Name of the customer
  • Customer email
  • CVC number on the credit card
  • Postcode and billing address for full details.
  • Shipping address, if differs from the billing address

11. Tracking information for your shipment

Be prompt with the delivery of this. After a customer orders the item, they will receive an email with the tracking information as soon as feasible. After that, they should receive regular updates. This can be used as proof in the event that a buyer claims it never came.

Strengthen your defenses against fraudulent charges

Are you looking to increase your detection of risky transactions? It's only one advantage from using Payments. It helps online businesses accept payments and protect their image and maximize profits.