Episode 6: How to Handle Chargebacks

Episode Transcript

Hello, welcome to The Business of eCommerce. I’m your host, Charles Palleschi. This is Episode 6. On today’s episode, we’re going to talk about how to handle chargebacks.

With chargebacks, it’s a bit more of an advanced concept, but it’s something that if you’ve been in business for a while running your own eCommerce site, you’re almost guaranteed to have got a chargeback. No one likes it. It’s awful when it happens. And if you’re in business, it either has already happened and it happened many times to you or it’s a matter of time before it does happen. So it’s something that everyone should be aware of and kind of know some methods of dealing with.

So first off, what is a chargeback? A chargeback is when you as a eCommerce retailer, or any retailer, are selling, charging a credit card, the end user then once they get that bill, they go back and they dispute that charge. Nothing comes back to you as the retailer. A bank puts a hold on the money that has been exchanged already and you then, are then … the onus is on you as the retailer to basically say either “Yes, this is valid” or fight it and try to get that money back. But at that point, the money’s already essentially gone.

So, simple example. Someone comes on your site. Pays with their credit card, a $100 charge. They, let’s just say they don’t get the product for whatever reason, and instead of contacting you, or, you know, if there are any normal channels, that sort of thing, they just call up their credit card company and say I have not yet got my product. I want to do a chargeback. I want to dispute this charge. The credit card company then takes that $100, immediately gives it back to the consumer, then they contact … I believe it’s Merchant Gateway, it kind of goes through the system. Then essentially you get a letter, usually a written letter saying: There has been a chargeback on so and so charge. There has been a $100 hold put on your account plus an additional chargeback fee. Do you want to provide evidence to the contrary, basically saying do you want to dispute this chargeback now and then go back and forth with them?

So, unfortunately, you as the retailer, I don’t have exact statistic, but more often than not no matter what you provide, there’s a good chance you could lose that battle. They very, very, very often side with the end consumer. And the retailer basically just has to, you know, eat the loss essentially … Which is really rough when you’re a retailer and you’ve actually shipped them the product. So not only are you out the refund charge, the actual amount, but you’re also out the product though. So you lose both.

So it’s something if there’s anyway to avoid this, it is very advantageous for you as a retailer to try not to get chargebacks or to get as few as possible. The first tip, and real easy … everyone should be doing it anyway is just have a really clear refund policy. It’s something that even in your terms of service you should have it on every page right in the footer. The very first thing should be a Refund Policy. I would maybe even say put a separate refund policy link with just a refund policy every single page.

Also provide it at Checkout. Just make it very clear what’s gonna happen, how, how many days. Don’t have any sort of gray areas, any sort of thing that could lead the buyer not to understand exactly what’s gonna happen and how. You know, it should be right there in the face. Just make it very clear if you want to say: All refunds in 7 days. No refunds. It’s up to you. But you have to make it very clear just so the buyer knows: Hey, if I buy this, this is exactly the terms that I’m buying this under.

That right there alone drastically does reduce the amount of chargebacks due to some sort of dispute where maybe they had it for 90 days and they try to return the product, and then you come back and say, “Sorry you can’t.” It helps out. It also helps when you do if you do decide to fight the chargeback, you’re able to then go to the bank and provide: Here’s our refund policy. Here’s a screenshot of our site. Here it is to the footer. Here’s the link to it. Here’s the exact text. Here’s the date of the charge. So you’re able to go back and really show, you know, we did do our best. We put it at checkout; we put it on the footer; we put it on every page of the site. We made it very obvious. Basically, it shows that you did your best.

So, what happens where you do have a clear refund policy and it happened anyway? This will still happen, unfortunately. Usually what I found to work the best is, and this really depends on the circumstances, but let’s just say it’s some sort of misunderstanding. It’s nothing, there’s no sort of trickery going on. It’s just something where I’ve seen buyers, they legitimately think when they don’t like the product or somehow that’s how they kind of, instead of contacting you directly, the retailer, they think the right thing to do is contact their credit card company and this is just the procedure. So sometimes it’s easy, you’re just contacting the buyer. Explain to them, you know, oh, if you’re not unhappy [inaudible 00:05:38 happy?], we have a full money back guarantee. We’ll send you a Return Label. You ship us back the product. We will send your credit card back right away. We would just appreciate it if you contact your bank and drop the chargeback. They do that. You send them the label; you send them back the money. It’s a win-win to everyone.

If this wasn’t their goal to try and take something or do something that they shouldn’t have, but there was just a misunderstanding, a lot of times it’s just contacting them and talking to them really does help. And it just kind of wins you points of kind of did the right thing. Give them a full refund. That sort of thing.

You also want to make sure, though, you want to call your bank and before you send them back the money, you want to make sure they drop the chargeback. It does take some time. It’s usually not an instant thing, so they don’t, you know, call their bank and you instantly know. It might take a couple of days so kind of let them know, a little bit of a heads up that this isn’t going to be instant, but you’re gonna be in contact with them and let them know how this is gonna take place. So that’s something if you can, that’s the kind of first step there. Something I recommend.

The next is you’re going to have to, if that doesn’t work, there’s many cases where, you know, there was some arguments back and forth. Someone’s trying to return something after six months. They broke it. You really can’t take it back if it’s something like that. That’s when contacting them isn’t going to work. In those cases, that’s when it’s best to really send them a screenshot of your site. Send them the refund policy. Show all of the places on the site. This is [inaudible 00:07:16] bank. Highlight all the places in your site of here is our refund policy. Here’s where we show it. We show it on the checkout page; we show it on the product page; we show it on the footer of every page; we show it on the home page. Here’s the exact refund policy. We even maybe send it with the confirmation email in every order.

So show that you really do have a clear refund policy. You also want to show the charge from your Payment Gateway so they’ll see the charge happen on the 1st. They tried to return it 90 days later. Any email correspondence you have, anything like that, it’s best if you can document it in terms of paper trail. Just provide all that and really make it really clear with the bank to really look through these documents. Usually what I like to do is provide a document at the beginning, basically a timeline. Here’s the day of purchase and give kind of a reference to that document of where they purchased it. Here’s where they first contacted us; reference that. And kind of a timeline so they can see, as the bank, here’s what happened and in what order at what days. Then you have documents to back that up.

That allows you to at least show that you did your best and you really did show them this is the refund policy. You did your best effort to make it clear and there’s just a dispute. Maybe they shouldn’t be dealing with us. So there are cases like that where you’re really not at fault but the onus is on you as the retailer to prove that to the bank. Because this whole time, the bank will be freezing the funds, essentially.

So … as you can kind of tell from that long-winded way around this is it does take time to fight these. It does take time to go back and forth. So this is also always something that you want to think ahead of time: Does this make sense? Is this a, you know, hundreds and hundreds of dollars of purchase or is this a $5 purchase that they’re contesting?

There is though to factor into that, is it A, is it worth the time? But second, is it worth the ‘ding’ against your merchant account? More of these chargebacks does actually hurt your merchant account. If you have enough of them, there’s some ratio they do internally of basically charges to chargeback ratio. If you cross over some threshold, you could jeopardize your merchant account, the entire account, essentially, which is very bad. So you do want to always be cognizant of are you, you know, how many chargebacks are you getting versus how many charges and that sort of thing. You don’t really want that ratio to ever creep up.

Lastly, the other thing you want to consider is there are fees. So typically, on top of them taking the money back, they’ll charge you X, whatever that is, you can look at your Terms of Service with your merchant account. But they will charge you a fee on top of that above and beyond just because there was a dispute. So you do want to take into account maybe you don’t want to hit every chargeback, maybe only chargebacks over a certain threshold. You even wanna argue with maybe the small ones just kind of let them go. Or maybe you just have some [inaudible 00:10:24 canned?] documents to send to them and you’re not probably researching them as much. You do want to take all of those things into account because it does hurt your credibility with the merchant account in the long run. Switching merchant accounts is not something anyone wants to do. So it’s just something you want to be aware of.

I hope that helps. Kind of a little overview of chargebacks and hopefully what you can do if you do get one. Hopefully you don’t, but unfortunately, if you are on any online platform where you take the credit card chargebacks do happen. There is a version of this also in the marketplaces like Amazon, eBay. They do have their own version of this process. It actually is kind of similar the way you kind of walk though the process. Same thing. Documenting everything. The only difference is they see, because let’s say Amazon, for example, they see billing on both sides. You don’t need to provide that documentation. But all the correspondence in that same timeline is something you do want to provide to them as well to help kind of show that you tried your best.

So, hopefully that helps. Hopefully it doesn’t happen to anyone. But if it does, I hope it does help you. If you have any questions, comments, definitely contact me. You can reach me directly at: businessofecommerce.fm. My email is: charles@businessofecommerce.fm. And you can reach me on Twitter @CharlesPal. I’m happy to hear from you. Any comments. Any questions. We definitely have to talk more about chargebacks. So, I will talk to you next time. Thanks. Have a good one.

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