A chargeback, also known as a reversal, is a transaction disputed by a customer or their card issuer. There can be myriad reasons for chargebacks: returned merchandise, terminated services, disputes, errors, or fraud being the most common. Many customers will approach the merchant first to resolve the dispute, only initiating the chargeback process if they cannot obtain a refund or a satisfactory solution from the merchant. Chargebacks are a form of customer protection provided by the card issuing banks, allowing customers to file a complaint regarding transactions on their statements. A soon as the customer files a dispute, the issuing bank must launch an investigation into the complaint.

Awarding a customer a direct refund will always prove to be less expensive than if that customer wins a chargeback from their issuing bank. Chargebacks are not only costly to the merchant through various chargeback fees, but can result in the refund of the sale and loss of the product. Merchants are also required to pay the issuing banks chargeback fee’s regardless of the outcome in order to cover the administrative costs associated with the chargeback and investigation. Multiple chargebacks may lead to a merchant losing their privilege to process payments.

Want to prevent potential costly and problematic chargebacks? Please see 16 tips provided by Visa below.

  1. Do not complete a transaction if the authorization request was declined, and do not repeat the authorization request after receiving a decline.
  2. If you receive a “Call” message in response to an authorization request, call your authorization center. Be prepared to answer questions. The operator may ask to speak with the cardholder. If approved, write the authorization code on the sales receipt. If declined, ask the cardholder for another Visa card. This is part of a KYC procedure (Know Your Customer).
  3. If an embossed card is presented for payment, make an imprint for all card-present transactions. If you have a point-of-sale terminal with a magnetic-strip reader, swipe the card through the reader for every face-to-face transaction. If the terminal isn’t working, or a card’s magnetic stripe cannot be read, key-enter the account information and make an imprint of the embossed information onto the sales receipt using a manual imprinter. Even if the transaction is authorized and the cardholder signs the receipt, if the receipt does not have an imprint of the embossed account number and expiration date, the transaction may be charged back to you for “no imprint” if the cardholder later denies participating the transaction.
  4. If an unembossed (card has no physically raised numbers) card is presented for payment and you have a point-of-sale terminal with a magnetic-strip reader, swipe the unembossed card through the reader for all card-present transactions. If the magnetic strip cannot be read, ask for another form of payment. Do not key-enter any transactions on unembossed cards, if you cannot prove the card was present (e.g., manual imprint/magnetic-stripe is read) you can be subject to a chargeback.
  5. Obtain cardholder signature. The cardholder’s signature on card-present transactions is required.
  6. Make only one imprint of the card for each transaction. Making more than one imprint can lead to duplicate deposits and increase the chance of a chargeback. If you need to redo a sales receipt because of an error, write “VOID” across the incorrect sales receipt, inform the cardholder, and tear up the incorrect sales receipt in view of the customer.
  7. Ensure that transactions are entered into point-of-sale terminals only once—and deposited only once. Entering the same transaction into a terminal more than once, or depositing both the merchant copy and the bank copy of the sales receipt with your acquirer, or depositing the same transaction with more than one merchant bank can all result in “duplicate transaction” chargebacks.
  8. Ensure that incorrect sale receipts are voided and that transactions are processed only once.
  9. If your establishment has policies regarding merchandise returns, refunds, or service cancellation, disclose these policies to the cardholder at the time of the transaction. Your policy should be pre-printed on your sales receipts; if not, write or stamp your refund/return policy information on the sales receipt near the customer signature line before the customer signs (be sure the policy shows clearly on all copies of the sales receipt). Failure to disclose such policies at the time of the transaction will be to your disadvantage should the customer return the merchandise.
  10. Deposit sales receipts with your merchant bank as quickly as possible, preferably within one to five days of the transaction date—do not hold on to them. Failure to deposit in a timely manner can result in chargebacks for “late presentment.”
  11. Deposit credit receipts with your acquirer as quickly as possible, preferably the same day as the credit transaction is generated. Failure to process credits in a timely manner can result in chargebacks for “credit not issued.”
  12. If a customer requests cancellation of a recurring transaction which is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately or as specified by the customer. As a customer service, advise the customer in writing that the service, subscription, or membership has been cancelled and state the effective date of the cancellation. Failure to respond to customer cancellation requests almost always leads to chargebacks.
  13. Keep customers informed on the status of their transactions.
  14. If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date.
  15. If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a customer dispute regarding the merchandise and a possible chargeback.
  16. Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you have shipped the related merchandise. If customers see a transaction on their monthly Visa statement before they receive the merchandise, it could lead to a preventable chargeback.

Though chargebacks may sometimes unavoidable, taking the above listed precautionary measures can help you protect your business, your customers, and the privilege of accepting credit and debit cards in your business operations.