Apr 04, 2025
Anyone who has been in business for a while understands that chargebacks are an inevitable part of the process. Some business owners may even consider chargebacks as just a regular cost of doing business. While chargebacks are a reality that can’t be avoided entirely, it doesn’t mean you have to passively accept them. After all, chargebacks can be costly, with individual incidents typically ranging from $50 to $75.
Chargebacks are also becoming more frequent. A 2017 report by Clearsale showed that the number of chargebacks is increasing by 20% each year, indicating that businesses are facing rising challenges. The report identified six common reasons for chargebacks:
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30%: The purchase was made with a stolen credit card
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26%: The product never arrived
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15%: The retailer shipped the wrong product
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4%: The product didn’t match the website description
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4%: The product didn’t meet the customer’s expectations
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3%: The order was billed twice or there were other clerical errors
As a merchant, minimizing these issues is a critical step toward reducing chargebacks and protecting your revenue. However, preventing chargebacks is just one part of the equation. It’s equally important to have a proactive chargeback management strategy in place. By leveraging tools like chargeback protection services, improving your shipping and tracking processes, and maintaining clear communication with customers, you can lower the risk of disputes and improve your chances of resolving chargebacks in your favor. Additionally, working with payment processors that offer chargeback prevention features can help you address issues before they escalate into costly disputes.
Friendly fraud
One of the most common types of chargebacks is called friendly fraud. Of course, for merchants, there isn’t anything friendly going on here. A friendly fraud chargeback is caused by a customer who receives a product or service as agreed upon and for whatever reason decides to file a dispute. In some cases, the person is dishonest, and, in others, he/she doesn’t remember buying the product, or it could have been purchased by a spouse.
In fact, Quicksprout found that 80% of customers filed a chargeback simply because they didn’t want to go through the hassle of letting the merchant know they’d like a refund. While that may sound disheartening, 18% of merchants who dispute friendly-fraud chargebacks win.
Start with the customer
As a first step in trying to resolve a chargeback, reach out to your customer. Ask them what you can do to resolve the matter. If you have no relationship with the customer, there might be nothing you can do. The customer may simply not respond. This is why it’s important to try building great customer relationships from the beginning.
File a response with the processor
A processor is the credit card processor used by a merchant. After the customer files a dispute with his/her bank, the chargeback process begins. The merchant has a certain number of days to respond. If the merchant doesn’t respond, the customer wins the dispute, and the merchant pays the chargeback fee while also incurring a loss in revenue.
Merchants respond through their credit card processor. The customer’s bank then reviews the dispute and makes a decision. The merchant can increase its chances of winning by filing compelling evidence with the response.
What is compelling evidence? It’s an audit trail that the merchant must put together. The evidence is meant to show that the merchant did everything perfectly relative to the customer’s transaction. Some evidence includes:
- Timeline
- How the product was delivered, along with tracking info
- Product receipt
- Any communication with the customer
Processors can usually help merchants identify compelling evidence. After the evidence is submitted, it’s a waiting game for the decision.
If the customer’s bank decides in favor of the customer, that is usually the end of any response. At that point, the merchant pays the chargeback fee and loses revenue related to the disputed purchase.
Many businesses don’t send responses to chargebacks. Gathering evidence can be very time-consuming. The fact that so few merchants actually win chargeback disputes is another reason that few find it worth their time to even try to win.
To help cut down on time involved with gathering evidence, make it easy to gather up everything needed. This starts with the type of system you’re using. If retrieving critical customer data points require running complex SQL queries and interfacing with third-party providers, it might be time for a change. A more efficient system will certainly benefit you when it comes to evidence gathering.
Also, don’t wait for the clock to run out. While you have a few weeks to respond to a chargeback dispute, there’s no reason to wait. Gather up your evidence and submit it as soon as possible.
Preventing Chargebacks
The best option for winning a chargeback is to avoid them altogether. Speak with your processor to see if it has a list of what to implement so you can avoid chargebacks. The processor may even have an audit service that can look at your implementation and make sure you haven’t missed anything.
Even if you’ve done everything right, it doesn’t mean you’ll avoid a chargeback; but it certainly puts the odds more in your favor.
