Why Chargebacks Matter
Chargebacks are more than an annoyance—they're a serious threat to your business:
- Direct costs: You lose the sale amount plus a $15-100 chargeback fee
- Account risk: Too many chargebacks can get your merchant account terminated
- MATCH listing: Excessive chargebacks can blacklist you from processing entirely
The acceptable chargeback ratio is typically under 1% of transactions. Exceed this, and you'll face account review, reserves, or termination.
Common Chargeback Reasons
Friendly Fraud (Most Common)
Customer received the product/service but claims they didn't, or forgot they made the purchase.
True Fraud
Someone used a stolen card. The legitimate cardholder disputes.
Product Issues
Customer received something different than expected, or product was defective.
Processing Errors
Duplicate charges, wrong amounts, or transactions the customer didn't authorize.
Subscription Confusion
Customer forgot they signed up, didn't realize a trial converted, or couldn't cancel easily.
Prevention Strategies
1. Clear Billing Descriptors
Your business name should appear clearly on card statements. "UNISON PAYMENT" is clear. "PROC*8472XY" triggers confusion and disputes.
2. Easy Contact = Fewer Disputes
Make your phone number and email extremely visible. Customers who can reach you will contact you instead of their bank.
3. Confirmation Emails
Send immediate confirmation with:
- What was purchased
- Price charged
- Your business name
- Contact information
4. Deliver What You Promise
Most product disputes stem from unmet expectations. Accurate descriptions and photos prevent issues.
5. Shipping Notifications + Tracking
Customers can't claim non-delivery when you have tracking showing delivery.
6. Clear Refund Policy
Displayed prominently, not hidden. Easy refund = no chargeback.
7. Signature on Delivery (High-Value)
For expensive items, require signature. This creates evidence.
8. Fraud Screening
Use AVS (address verification) and CVV matching. Consider 3D Secure for online transactions.
9. Subscription Transparency
- Clear terms before checkout
- Easy cancellation process
- Reminder emails before rebills
- "Cancel anytime" actually means anytime
When You Get a Chargeback
Step 1: Respond Quickly
You have limited time (usually 7-14 days) to respond. Missing the deadline = automatic loss.
Step 2: Gather Evidence
Collect everything relevant:
- Signed receipts
- Delivery confirmation
- Customer correspondence
- Terms they agreed to
- IP address / device fingerprint
- Photos of delivered items
Step 3: Write a Clear Rebuttal
Explain what happened factually. Include your evidence. Don't be emotional.
Step 4: Submit Through Your Processor
Your processor has a dispute portal. Submit everything they request.
Chargeback Alerts
Services like Midigator and Verifi provide early warning when cardholders initiate disputes. You can refund before it becomes a chargeback, saving the chargeback fee and protecting your ratio.
How it works: 1. Customer initiates dispute with bank 2. Alert service notifies you within 24-48 hours 3. You issue refund 4. Dispute is resolved—no chargeback recorded
This is especially valuable for high-risk merchants where chargeback ratios are watched closely.
Monitoring Your Ratio
Track your chargeback ratio monthly:
- Visa threshold: 0.9% (100+ chargebacks and 0.9%+ ratio)
- Mastercard threshold: 1.5% (100+ chargebacks and 1.5%+ ratio)
If you're approaching these thresholds, take immediate action—reduce risk, improve customer service, implement alerts.
Bottom Line
Chargebacks are preventable. Most stem from customer confusion, poor communication, or friendly fraud. Invest in:
1. Clear communication (descriptors, confirmations, easy contact) 2. Documentation (tracking, signatures, correspondence) 3. Fraud prevention (AVS, CVV, 3D Secure) 4. Alert services (catch disputes before they hit)
A 0.5% chargeback ratio is achievable for most businesses with proper practices.