For businesses, a chargeback on a credit card purchase a customer has made can be stressful. It can mean losing money and often not knowing why a customer decided to order the chargeback instead of returning a product or trying to resolve the dispute with the business.

Over time, chargebacks can severely impact the bottom line of any business. Unfortunately, some customers do not understand how they work, which means they get used incorrectly.

What Is a Credit Chargeback?

A credit card chargeback, by definition, is a process whereby a customer disputes a charge on their credit card and gets their money refunded by their bank or credit card company. Originally, this process was designed to protect the customer.

Chargebacks protect all credit card users from fraud and illicit activity on credit cards. In fact, it’s what makes credit cards more secure. If your credit card is ever used without your permission, your bank or credit card company will refund you the money.

Chargebacks also protect credit card users from unscrupulous businesses. If a company sells a product, fails to deliver it, refuses to take back a defective item or otherwise acts in bad faith, chargebacks give customers an option — they don’t have to lose money or take a business to court to get their funds back.

The Chargeback Process

In a chargeback, the credit card customer does not visit the store or business to dispute the charge. Instead, the bank or credit card company begins the dispute process, and the business that sold the product or service the customer is disputing will have 12 business days to offer evidence that they provided the product or service. This evidence usually involves the signed sales receipt. If the business can’t supply the sales receipt, the credit card company debits the amount of the purchase from the company’s account and charges the business a penalty. The money goes back to the customer.

The business who provided the service or product being disputed is given a number that explains why there’s a dispute. The customer may claim that they did not make the purchase, the amount was incorrect, they did not receive a refund or another issue occurred.

Businesses have a chance to dispute the reason for a chargeback, and the dispute process is mediated by the credit card company. There’s a lot at stake for the company. If they lose the dispute process, they lose the money they made with the transaction. If they acquire too many chargebacks, credit cards will also charge them ever-higher fees.

Most companies go to great lengths to avoid chargebacks, including by offering in-store guarantees and return policies to encourage customers to resolve disputes through the company rather than through a credit card provider.

If you’d like to accept credit card payments at your company, contact Velocity Merchant Services for a free discussion. Our team can help you find the right services and work with you to keep your customers happy and your business thriving.

Have questions?  Talk to one of our Small Business Specialists.

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