What are chargebacks and how can I prevent them?

When you’re starting a subscription business, it can be complicated to learn all the complex words and lingo that’s unique to the recurring payments industry. That’s why we’ve created our Billsby Explains video series, where we tell you all about the words and lingo you need to know if you’re starting your subscription business. In this video and accompanying article, we’ll explain what chargebacks are, and give you some handy tips to reduce chargebacks in your business.

When you’re starting a subscription business, it can be complicated to learn all the complex words and lingo that’s unique to the recurring payments industry. That’s why we’ve created our Billsby Explains video series, where we tell you all about the words and lingo you need to know if you’re starting your subscription business. In this video and accompanying article, we’ll explain what chargebacks are, and give you some handy tips to reduce chargebacks and to prevent chargebacks in your business.

If a customer doesn’t recognise a transaction on their bank statement from your business, they’ll likely initiate a chargeback. After a consumer successfully debates an item on their transactions report or accounts statement, chargebacks are charges that are returned to a payment card.

Chargebacks are really bad news for your business because the funds from the transaction are immediately removed from your account, your chargeback rate goes up – so you might find more transactions are declined in the future, and your payment gateway will often charge you a hefty fee. There are different types of chargebacks- friendly fraud, merchant error and criminal fraud. Each type of chargeback is handled by banks differently.

If someone initiates a chargeback against you, you can dispute it with evidence in your payment gateway. You’ll need to provide your terms and conditions, evidence that you provided the service that the customer paid for and any emails or correspondence between you and the customer about the services you provided.

If you win the dispute, you’ll usually get a refund of the dispute fee from your payment gateway, but most disputes are lost – even if you’re in the right – because the burden of evidence is so high. So – how can you stop disputes from happening in the first place?

First, think about how transactions are presented on the card statement. You’ve got about 20 characters, so make them count. Include your product name, or a short URL like company.com/what where you can make a page to explain the charge.

Second, when you email out invoices, make sure you include all the information people need to contact customer service – so they can get questions answered or raise concerns through you, rather than your bank.

And third – pick your battles! Even if your policy is ‘No refunds’, if a customer asks for a small refund and threatens a chargeback it might be worth issuing it anyway – particularly if the chargeback fee would be higher. Remember, once the chargeback has been processed, even if you agree to a voluntary refund, you’re still paying that fee.

The following can help you to reduce chargebacks-

  • Increase your availability

  • Use a name that your consumers can recognize easily

  • It's better to provide more details

  • Don't make false promises

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So, that’s everything you need to know about chargebacks. Chargebacks, which are focused on charges that have been fully processed and resolved, might take several days to complete because they must be reversed through an electronic process involving numerous parties. If you need subscription billing software that helps you reduce your chargebacks, give Billsby a try. You can make $50,000 on us with a free trial of Billsby.

You can also gain more knowledge on B2B subscription management by reading our other blogs.