What is a chargeback? A chargeback occurs when a customer’s credit card is approved at the point of sale, but then is reversed when the customer files a dispute with their card issuer. This is the most common reason for a chargeback, but there are a few others, such as computer glitches or miscommunications. However, any chargeback could mean lost revenue for your company as well as incurring fees.
The chargeback process
The typical chargeback process may consist of the following steps:
- Your buyer contacts the credit card issuing bank to dispute a specific charge.
- The credit card issuer contacts the appropriate credit card association, who then notifies merchant of the chargeback.
- Your merchant services alerts you of the chargeback via fax, mail or email and requests supporting documentation to contest it on your behalf. To dispute a chargeback, you must reply to the correspondence by the indicated reply-by date.
- Your merchant service provider will review the details of the chargeback and the documentation provided by you.
- When deemed necessary your merchant service provider submits the evidence to the credit card issuer in an attempt to reverse the chargeback.
- If the chargeback is successfully disputed on your behalf, no further action is required. If the credit card issuer does not resolve the chargeback in your favor, you may be liable for the chargeback.
Keep in mind that your merchant service provider can only forward your chargeback response to the credit card issuers for review. The credit card issuer is ultimately responsible for determining the resolution of chargebacks.
If you’re found liable for a chargeback: You’ll receive a notification via mail, fax or email from your merchant service provider with details about the chargeback. You’ll be charged for the full amount of the chargeback.
Things to remember
- Different orders from the same buyer count as separate chargebacks. Please be sure to respond to each information request you receive individually so that all of the chargebacks can be properly contested, if possible.
- The Fair Credit Billing Act protects customers’ rights to dispute charges for a number of accepted reasons. Generally, a policy that allows no refunds will not be upheld by the credit card associations.
- Because credit card issuers require that any documentation be received within a certain number of days, prompt replies to our information requests are necessary if you intend to contest the chargeback. Once this time frame has expired and the credit card issuer has resolved a chargeback in the buyer’s favor, they will not review any additional documentation.
- The final status of a chargeback may not be determined for several weeks or occasionally several months after it is initiated.
- Not answering chargebacks in a timely manner can be detrimental to your merchant services account. If you agree that the customer should be refunded, go ahead and refund them, but you must still answer the chargeback notice. Each chargeback that goes unanswered counts as a strike against you, too many and your service provider will revoke your account.