How to Prevent and Manage Chargebacks with SumUp: A Guide for Small Businesses
What is a credit card chargeback? Simply put, it’s a refund resulting from a payment dispute. But unlike a regular refund, customers don’t have to return whatever they bought since they’re appealing to the bank directly.
As a business owner, you lose money whenever this happens, which is why it’s important to know how to prevent chargebacks. First, you need to understand what causes them.
What causes a credit card chargeback?
There are several common reasons credit card chargebacks happen, both fraudulent and non-fraudulent.
Fraudulent chargebacks
When a customer sees they’ve been charged for something they never bought, that usually indicates fraud. This can lead to them disputing the charge and you paying the price.
Non-fraudulent chargebacks
The reasons for fraudulent chargebacks are pretty simple. However, there are lots of reasons a customer may initiate a chargeback, which have nothing to do with fraud. Some typical ones include:
Shipping problems: If a customer never got their order because of a problem with the shipping, they might file a chargeback.
Technical problems or a website error: If your website malfunctions or the customer does something by accident, it could result in an accidental purchase.
Delays in the return process: Sometimes, a customer returns an item and expects a refund, but it hasn’t shown up in their account for some reason. That can lead to them disputing the original purchase.
An unclear business name: If a customer buys something from you and the charge they see is under another name, they may think it was fraud and dispute the charge.
General dissatisfaction: Customers may decide that they aren’t happy with the quality of your product or your customer service and then initiate a chargeback as a retaliation. The challenging thing here is that ‘quality of service’ is very subjective, so it can be hard to argue as a merchant.
How to avoid chargebacks
Now that you understand some of the reasons you might be facing a credit card chargeback, the question is how do you prevent chargebacks. First, let’s tackle non-fraudulent credit card chargebacks.
How to prevent non–fraudulent chargebacks
Non-fraudulent chargebacks are easier to address than fraudulent ones because they’re fundamentally an issue of misunderstandings or hiccups in your business.
Chargebacks due to shipping problems indicate an error made by your shipping carrier. Talk to them and figure out what, if anything, they’re doing wrong that leads to damaged or missing products. It’s also a good idea to send customers emails tracking the status of their orders.
Chargebacks involving technical problems or user errors often stem from problems with your website. You want to make sure your e-commerce store is reliable and crash-proof. User error may mean that customers are confused by some aspect of your website. Try to minimise the information you’re asking for (or throwing at them), and make checkout as clear as possible.
Looking for an e-commerce platform? Our online store builder is free and easy to set up in minutes. Sell online today.
Make sure to clarify your return policy so that customers don’t get impatient after they return items and initiate a credit card chargeback before their money has reached them. Make sure that the name on customers’ bank statements matches the name of your business to minimise confusion.
Finally, be sure to accurately describe your product and respond to customer queries promptly. This will make chargebacks based on dissatisfaction less likely.
How to prevent chargeback fraud
Chargeback fraud protection is a bit more challenging because the cause of the chargeback is intentional. Still, there are ways to make chargeback fraud less likely. Implementing stricter verification measures helps ensure that the credit or debit card being used belongs to the consumer and hasn’t been stolen. Require details like the CVC and the customer’s address so that you can check to ensure it’s a genuine purchase.
Using two-factor authentication, which requires a customer to verify their purchase on a second device, is also a good fraud protection measure. That way, credit card chargebacks are less likely because anyone looking to use stolen information to make a purchase has to have a customer’s phone or email password as well.
When it comes to physical deliveries, requiring a signature cuts down on fraud. Having someone come to the door to sign for a package lets you check that the customer and the recipient are the same person.
If a customer has ordered from you before, you might be able to flag orders that don’t look right. People ordering massive amounts of something or ordering something inconsistent with past behaviour can be cause for alarm.
How to handle chargeback management
Despite all your preparations, it may happen that you’ll be faced with a chargeback at some point, so it’s good to know how to handle the chargeback dispute process. To start with, chargebacks are contestable. As a business owner, you can sometimes get a chargeback refund if you plead your case successfully.
How SumUp handles chargebacks
At SumUp, we do everything we can to make the chargeback dispute process as painless as possible. First of all, we cover the initial cost of the chargeback as soon as our acquiring bank notifies us of one. If you do wind up paying, the money will come from your next scheduled payout rather than your account.
We’ll send an email informing you there’s been a chargeback and giving you a deadline for disputing it. Until that date, you can contact the issuing bank to try and get a chargeback refund. If you don’t respond in time, the cardholder will keep the money.
The bank decides whether to overturn the chargeback or not based on the information you give them. So make sure to be as detailed as possible in your email – this is also why things like regular shipping updates and requesting signatures upon delivery are good ideas, so you can prove your case.
The bank either rules against you, in which case the cardholder keeps their money, or in favour of you. If they agree to refund your money, the chargeback gets reversed. The cardholder gets another 60 days to appeal their case, after which we return your money.
Regardless of the outcome, because we don’t immediately withdraw your money when a chargeback is filed and deduct the amount from future payouts, you won’t lose as much as you might when using another payment provider.
Want to feel more secure when you get paid? Join SumUp, and you’ll have a payment provider who’s always on your side. Plus, all transactions made with a SumUp card reader are encrypted according to the latest data protection standards, which means a lower chance of fraud. And better fraud protection means fewer credit card chargebacks.
Chargeback FAQs
How to protect yourself from chargebacks?
To reduce chargebacks from occurring, find out where the problem with the product has occurred. This could be anything from an issue with the shipping company to a misunderstanding with the returns policy. If the chargeback is fraudulent, employ better verification procedures to better protect your business, such as two-factor authentication and signature on arrival.
What causes chargebacks?
There are a number of reasons why a customer might initiate a chargeback. Perhaps the product isn't received or arrives damaged, or the customer believes they have been charged incorrectly for a product. However, in some cases, a customer may initiate a chargeback fraudulently, which you will then have to dispute to prevent losing your money.
What is SumUp’s role in chargeback management?
SumUp will cover the initial cost of any chargeback once notified by the bank to protect your business. You will then be given time to dispute the chargeback. If you choose not to dispute it, or the bank rules against you in a dispute, the cost will be deducted from your next scheduled payout.
How long does it take to resolve a chargeback?
Many chargebacks are resolved within 30 to 60 days, but some may take months to resolve. The entire process involves the cardholder initiating the chargeback, the seller either agreeing to payment or disputing the claim, the bank investigating the claim, and then a resolution is reached for or against the claim. Depending on the complexity of the claim, it can take a few weeks to a few months to resolve.
