When a customer decides to return an item, he or she can either return it for a refund or store credit, or they might initiate a chargeback. But what is a chargeback? How is it different than simply returning an item?
A chargeback is when a customer files a claim with his or her bank or credit card provider to recall funds from a merchant, rather than dealing with the merchant directly. A chargeback can be issued for a number of reasons including:
- Technical Error – when there is a technical error with the card or bank
- Clerical Error – when a transaction is billed incorrectly
- Quality Issues – when goods are not received
- Fraudulent Transactions – when a customer claims that he or she did not authorize a purchase or is a victim of identity theft
Chargebacks are mostly in place to protect consumers in cases of error, fraud, or identity theft. It keeps them from being held responsible for purchases they didn’t make, or for incorrectly billed purchases. However, there are some who abuse chargebacks, which could cause your business major problems. So how can you avoid chargebacks?
1. Make sure the billing and shipping information is complete and accurate.
If a customer never receives a purchase because it was shipped to the wrong place, you could not only lose the item and the money you would have received, but you could also lose the customer. You can’t prevent user error, but you can ask if the billing address and the shipping address should match—and they usually do. You can also ask customers to confirm their address before you proceed, to make sure that you are being as accurate as possible. In addition to ensuring address accuracy, you and your customers can track packages to ensure safe, on-time delivery.
2. Make sure credit card information is complete and accurate.
When processing a “card-not-present” transaction—where chargebacks are most likely to occur— do all you can to ensure accurate credit card information. You could use a service that makes sure you can’t authorize an invalid or expired account, reducing your risk of a chargeback. Another important piece of information to obtain is a card’s CVV2 (card verification value) number. A CVV2, sometimes called a CVD (card verification data), CVN (card verification number), or a CSC (card security code), is a three- to four-digit code usually found on the backs of credit cards, under the magnetic strip, next to your signature. Having this code can help ensure that you are accepting payment from the cardholder.
3. Provide excellent customer service.
Providing excellent customer service throughout a customer’s experience with your business could encourage him or her to simply return or exchange a product, rather than initiating a chargeback. It will also encourage your customers to continue their business relationship with you even after a return, rather than terminating it all together.
4. Be straightforward from the beginning.
Making sure that your customers are aware of your return policy is another great way to avoid chargebacks. Whether you offer a return of funds or in-store credit, a return is far easier to deal with than a chargeback. Informing your customers of your return policy at the time of purchase, and making it easy to find later on, can go a long way in preventing chargebacks.
While you probably can’t avoid chargebacks altogether, ensuring accurate customer information, providing excellent customer service, and being straightforward from the beginning can decrease your risk of customers initiating chargebacks.