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What are Chargebacks?

What you need to know about Chargebacks is that they can occur when a customer contacts a credit card Issuing Bank to initiate a refund for a purchase they made on their credit card. The reasons why chargebacks arise can vary greatly but generally, they are the result of a customer being dissatisfied with their purchase.

Credit Card Chargebacks


A chargeback is a reversal of a credit-card transaction -- not because the product was returned or because the sale was never completed, but because there was some problem processing the transaction. Often, a chargeback means the merchant ended up providing a product or service for free -- and had to pay the merchant bank for the privilege. Common reasons for chargebacks on credit card merchant accounts include:

  • Customer disputes
  • Fraud
  • Authorization issues
  • Processing errors
  • Failure to fulfill copy requests

Merchants, of course, hate chargebacks. When you shop for a credit card merchant account, pay attention to the merchant bank's chargeback rules. A good merchant bank will take chargeback management seriously and provide chargeback protection for its customers. Here are some other ways you can help prevent chargebacks:

  • Take customer satisfaction seriously, and strive to meet customer expectations about what products or services you will provide, when you will charge their cards, and preventing fraud within your own operation.
  • Be sure your staff is trained not to process transactions with declined authorizations or without customer signatures.
  • Never estimate charged amounts, and be sure the customer sees the final total (including tips and other add-ons) before the card is charged.
  • Be sure the transaction information on the sales receipt is legible.
  • Ship merchandise before processing credit card transactions.
  • Be vigilant about voiding duplicate transactions added in error, and take steps to secure credit-card deposit information to avoid the possibility of employee fraud.
  • Disclose return and refund policies clearly before a sale, and be prompt about cancelling transactions when customers request it.

If a merchant account has too many chargeback's, is considered a higher risk for the merchant bank, and often indicates that the merchant has a problem with quality of products, delivery times, or customer service. You should be responding promptly to all customer disputes and other factors that could cause chargebacks, but you should also be aware that your merchant bank can cancel your account if you hit the chargeback threshold.

If the chargeback threshold is over 1.0 - 2.0 percent, your bank may sever its relationship with you when chargeback's reach 1.0 - 2.0 percent of your sales for a given period. As you shop for a credit card merchant account, take the threshold section of a bank's chargeback rules into account in your calculations.

No merchant can expect to avoid chargeback's entirely but knowing your threshold can help you take steps to keep them under control. Also pay attention to whether your merchant bank has a chargeback management staff available to help you deal with customer disputes. This can be a useful service that protects you as well as the bank.

 Please contact one of our representatives to help educate you and how to minimize and prevent those unwanted to disputes that could possibly lead to a Chargeback.