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Avoiding and Dealing with Chargebacks

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJuly 20222 min read

If your business takes card payments online, you’ll probably need to deal with chargebacks at some point. They can cost your business time and money – but what is a chargeback and how should it be dealt with when it happens? Here’s what you need to know about chargebacks in business.

What is a chargeback?

When a cardholder disputes a transaction on their statement, the credit card payment is reversed. This is called a chargeback, and it can be caused by legitimate unauthorised payments as well as fraudulent transactions. No matter the cause, a chargeback means that your business doesn’t get paid for goods and services provided. You may also need to pay additional fees while the chargeback is investigated.

The chargeback process follows these basic steps:

The cardholder or cardholder’s bank files a dispute against the merchant for an unauthorised charge.
The bank notifies the merchant and debits the account to refund the cardholder.
The merchant can disagree with the dispute and provide supporting evidence to back their case.
The bank reviews the supporting evidence, and the dispute is settled, either in the merchant’s or cardholder’s favour.

What causes a chargeback?

There’s a wide variety of reasons why a cardholder might raise a dispute or file a chargeback. These include situations such as the following:

The card was invalid at the time of purchase
Goods and services were paid for with a different payment method than the card in question
There was a duplicate transaction
Goods and services were ordered but never received
Goods and services were received but inaccurately described or defective
The customer was charged an incorrect amount

How to deal with chargebacks

If you believe that the dispute was raised in error, it’s important to submit your supporting evidence as quickly as possible. You should include documentation to back up your case including sales receipts, invoices, descriptions of the goods and services, and proof of shipping. Keeping detailed records helps immensely when the time comes to deal with chargebacks. If you’re unable to prove that the transaction was authorised by the cardholder, you’ll be on the hook for payment.

How to avoid chargeback fees

Of course, the best way to deal with a chargeback in business is to avoid the situation in the first place. While you can’t prevent all chargebacks, here are a few tips to help minimise them.

Be clear about your return and cancellation policies. These should be printed on all sales receipts and displayed clearly on your website to avoid any confusion.
Record and deposit receipts accurately. Deposit receipts within five business days to avoid ‘late presentment’ chargebacks and ensure that you only process and record your transactions once.
Keep evidence that your merchandise has shipped. As with receipts, hold onto proof that you’ve shipped the item to the cardholder. Don’t deposit your transactions with the merchant bank until the product has shipped – otherwise the customer will see a charge on the statement without having physically received their item yet.
Keep the lines of communication open with customers. If there’s going to be any delay with shipment or other issues, inform the cardholder straight away so they don’t report a missing item.
Make sure you hold onto full transaction records for at least six months. All invoices, receipts, and promotional materials should show your business name, address, customer service contact details, and a full description of the goods and services provided.

Finally, you can avoid chargeback business fees altogether by providing alternative payment methods to credit cards. GoCardless gives businesses a secure alternative to card payments, allowing businesses to instead collect payment directly from the customer’s bank account. This not only involves lower transaction costs but eliminates the potential for chargebacks. GoCardless can be used for both one-off and recurring payments, using direct debit. It also integrates with over 200 global partners including major invoicing and accounting software like Xero and others, ensuring no transaction details fall through the cracks.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.