Whether you are taking mobile payments or accepting payments online, chargebacks are something every merchant has to be prepared for. If a customer disputes a charge with their bank (or issues a chargeback) they are reimbursed the money immediately. It’s then left up to you, the business, to fight to get your money back by proving the transaction was valid.
Although it’s impossible to stop customers from issuing a chargeback, below are a few easy ways you can help limit your chances.
1) Use a name that your customers will recognize
Your credit card descriptor is the name that shows up on your customers’ credit card bills or online statements. One of the biggest reasons merchants experience chargebacks is because their customers simply don’t recognize the charge. If you’ve branded your website something other than your legal name, use the name that appears on your website as your credit card descriptor. Even if you list your legal name in the footer of your website, chances are, your customers won’t read it or remember the name by the time the charge pops up on their statement a few days later. If you really want to use your legal name, I recommend using a URL as your credit card descriptor and setting up a page similar to this one from 37signals:
2) Be available
2) Be available
While some customers might instantly issue a chargeback when they don’t recognize a charge, others will actually take the time to do a little research about it. Make sure you have at least one easy way for those customers to get ahold of you. That means putting up an email address or phone number on your website. I know it’s hard, especially for startups, to man a phone 24/7, but most people are just as happy with an email address. Even if the customer wasn’t going to issue a chargeback, being available to your customers is just a good business practice. Giving unhappy customers a way to voice their concerns could help you save the sale or at least your company’s reputation with them.
3) The more detail the better
Ever ordered something online, and then when it arrived thought to yourself “wow, this is not at all what I thought I was ordering?” What about signing up for a service that you thought would solve your problem, but didn’t? The best way to avoid chargebacks from these scenarios is to provide detailed descriptions of what you’re selling. Include pictures or screenshots whenever possible. Dimensions are helpful if you’re selling products. For SaaS providers, give a detailed list of the features and functionality you offer. You can add to this list later as you enhance your service.
4) If you’re going to offer a free trial, make sure it’s really free.
Don’t make customers enter their credit card information when signing up for your free trial just so you can roll them right into a plan with recurring payments. Go ahead and collect their information, but make sure your customers have to opt-in to your paying plan at the end of the free trial. You may lose out on those customers who would have otherwise forgotten to cancel their account, but it will guarantee that all of the customers you do get really want to use your service. Chances are the ones who forgot to cancel will either issue a chargeback or contact you for a refund anyway, creating more work for you in the end.
5) Don’t make a promise you can’t keep
When you’re first starting out, offering a lifetime membership sounds like a great idea to get customers, especially if the cost to signup is low, but you’re setting yourself up for failure. You've just promised to provide your service their entire lifetime. This opens you up to a lot of chargebacks if you decide to switch the company’s direction, or worse, if you decide to shut your doors. Promising miracle results leaves you with the same exposure. If your product doesn’t cut through steel or deliver those 6 pack abs in a week, you’re going to run into trouble.
6) Don’t hold onto your customers’ money
The longer that money is in your possession before your customers get what they paid for, the more time your customers have to issue a chargeback. Annual subscriptions is one example of this. Your customer may have access to your service on day one, but they’ve been promised a full year of service. That’s 365 days where you run the risk of a potential chargeback. Once the chargeback has been issued, your customer gets the full amount back, not a prorated amount - even if they’ve already been using your service for 10 months.
Another example is credit based billing models that allow customers to deposit funds up front and then work off of those funds over time. These models tend to see a higher chargeback rate than those that bill customers per use or by invoice at the end of the month. Billing after you’ve already provided your service almost entirely eliminates your chance for a chargeback.
7) Offer refunds!
I can’t stress this enough. It is the number one way to reduce your chargebacks. Let’s face it - chargebacks were created to protect consumers against scammers, so they are heavily skewed in favor of your customers. If someone’s not happy with your product or service, they are going to get their money back one way or another.