Chargeback Basics

Accepting credit cards is virtually a must at most, if not all, successful businesses. Credit cards and debit cards offer customers a convenient way to pay for their goods and services while still being able to carefully track their spending. Processing credit card payments, however, can become very complicated, which is why there are merchant accounts that will do this process for you.

One of the complications is dealing with chargebacks. When you accept credit card payments at your business, you run the risk of incurring chargebacks. A chargeback is a form of customer protection. It allows customers to file a complaint when they suspect that fraudulent activity has occurred on their card. While this protection is fantastic for customers, it can be troublesome for merchants.

How Does a Chargeback Work?

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Once the customer has issued their complaint, the bank or other card issuing party will investigate the complaint. If the transaction is fraudulent, then they will return the customer’s money to them. Again, this process seems very helpful, until the point in the process that will affect the merchant. Keep in mind that, if the investigation concludes that no fraud occurred, then the merchant is unaffected.

If the transaction is proven to be fraudulent, then the bank will take the entire amount of the transaction from the business’s account. It will also charge any related chargeback fees, which generally range from nothing to $100, depending on who is sponsoring your business account. Businesses that incur too many chargebacks are considered “high risk” and their merchant account could be revoked.

Customers usually have a two-year period to dispute claims. That means that merchants are at risk for losing their money based on chargebacks for a two-year period. However, most banks will not handle disputes that are more than six months old. Nonetheless, because the period is legally two years, merchants should hold on to all of their paperwork for at least that two-year period.

Avoiding Chargebacks

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The best way to avoid chargebacks is to refuse to accept credit card payments. However, that usually isn’t an option in most situations. Another way to combat the problem is to obtain chargeback insurance. Chargeback insurance can help protect your business should a chargeback claim arise. For more information about chargeback insurance, visit eMerchantBroker.com.

Business owners should generally take steps to avoid fraud if they want to avoid chargebacks. One of the ways to do this is to ask for identification whenever a credit card is provided for payment. The business should then refuse to accept the card if identification cannot be produced. This might be cumbersome, especially for regular customers, but it will discourage fraud.

Chargebacks can also occur for returned merchandise, items that were not received, or technical problems. Setting up a system that ensures that he customer got their products will help avoid these types of chargebacks.

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