Chargeback Prevention Best Practices


The chargeback process protects consumers in the event that a credit card transaction does not go as expected. A chargeback is initiated when a consumer files a dispute with the card-issuing bank, and then the outbound transfer of funds to the merchant for the specific transaction is reversed by the bank and the funds are returned to the consumer. Chargebacks can resolve poor customer service experiences and provide a means for reversing unauthorized charges due to fraudulent activity on the consumer’s credit card account. Chargebacks also help consumers recover payments made to sellers where the purchase did not meet the agreed upon standards, or the items that were purchased were never received.

The chargeback process gives consumers peace of mind when shopping with a credit card, but for merchants, chargeback management can be time-consuming and affect their bottom line. Chargebacks are a necessary cost of doing business, but the cost can be disproportionate to the profit on goods sold. For that reason, merchants should do whatever they can to reduce credit card chargebacks or at least minimize their frequency.

Spell Out the Details

Minimizing chargebacks begins with merchants developing comprehensive guidelines for the entire purchase process, from advertising products to posting terms of sale and charging customers. Merchants should be sure those guidelines are clearly understood by everyone involved in the process, including their customers and their employees. In other words, merchants should:


  • Describe products and services accurately and honestly in advertising. Clarity in advertising can help prevent consumers from filing chargeback disputes because the product or service they purchased was not as described. For example, the description of a flashlight might say how large it is, what size batteries it uses, and whether batteries are included. The description of a software program might indicate which version it is, what operating system it requires, and whether other programs are needed for it to work properly.
  • Clearly post shipping and return policies. Make these policies conspicuous and easy to read and understand at the time of the transaction. Periodically review the posted policies to be sure they are always correct and detailed. For example, if the customer must pay return shipping, be sure that information is included in the posted policies. For the return of high-value items, consider issuing them a return label through your shipping vendor so you have maximum visibility.
  • For card-not-present transactions, require customers to provide the card verification code on the actual credit card at the time of purchase, and then re-authorize the card again prior to shipping. Be sure the shipping address is the same as the billing address for the card. If they are not the same, you should have an internal policy as to when to allow items to be shipped to a different address.
  • Online merchants should always employ a click-to-accept procedure during checkout. This procedure makes the customer accept your policies affirmatively by clicking or checking a box saying they have read your policies. This helps protect you when a consumer claims they were unaware of a restock fee, or that they had to pay return shipping, or that the item was non-refundable. These policies should be written in a clear manner so that the consumer understands them.
  • Use a clear and sensible business name that customers will recognize when they see the charge on their credit card statement. Be sure this name corresponds to the name of the website where purchases are made and the confirmation e-mail sent to customers. Provide a toll-free phone number to be included along with the business name so customers can call you directly with questions about the transaction, rather than calling the credit card issuer.
  • Contemplate performing manual reviews on transactions if you sell higher valued goods or services. If permissible, record IP addresses, emails, device ID, etc. of customers who place orders online and create lists of positive and negative transaction experiences. Compare new transactions to those lists to generate alerts about possible fraud.
  • Maintain a record of communications with customers who made their purchase online or on the telephone. This helps you to prove that the cardholder did actually make a purchase and was aware of any discussion prior to the chargeback.

Communicate with Customers

Often the chances of a chargeback can be reduced simply by letting customers know you care about their satisfaction. Not only can good communication help avoid chargebacks, it boosts consumer confidence and can ensure repeat business.

  • Make it easy for customers to get customer service during the hours posted it is available. Many customers will go to the merchant first to resolve a dispute, and may only file a chargeback complaint with the credit card issuer if they aren’t satisfied with the merchant’s response to their complaint or if it is difficult to reach the merchant in a timely manner. As long as a dispute is justified within a merchant’s policies, issuing a refund can help the merchant avoid a chargeback and the fees associated with getting a chargeback. Because of this, it is usually better to resolve complaints through the merchant’s customer service process.
  • Keep in touch with customers after the transaction is complete. Send a follow-up message acknowledging the completion of the transaction. Provide stock information and estimated delivery dates if an item is on backorder, and give them the option of buying a different item or cancelling the transaction. Let customers know you are concerned about their satisfaction by asking for feedback or suggestions for improvement.
  • Consider implementing a process to let customers know the status of their order at each step along the way. If customers know you are monitoring the processing of their order and they can find out its status at any time, they will be less likely to initiate a chargeback if there is a delay and more likely to call the merchant if concerned.
  • Respond to customers promptly when they express a concern. Once a customer contacts the issuing bank to complain about a transaction, a merchant is given a specific amount of time to respond to the complaint. If the issue isn’t resolved within that time, the bank will simply process the chargeback.

Chargebacks affect the bottom line of every merchant who accepts credit card payments. Whether they are initiated to dispute a legitimate charge or they are fraudulent chargebacks, chargebacks can be costly for merchants. Too many chargebacks can even cause a merchant to lose credit processing privileges.

It is impossible to stop chargebacks entirely. But prudent merchants can protect their business by being proactive, ensuring customers are satisfied with their purchases, and that the consumer understands the conditions of the sale. By taking the necessary steps to prevent chargeback fraud proactively, merchants reduce the risk of chargebacks and the accompanying costs.