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How to Protect Your Business From Chargebacks: An Actionable Guide to Mitigating Chargebacks

Business owners encounter chargebacks from customers regularly. But do you know how to protect your business from them? No matter how careful you are, there’s always a chance that a customer won’t be happy with their purchase and file a chargeback. As frustrating as this is, it’s also not something that you should concern yourself with. A chargeback occurs when a cardholder disputes an item they’ve purchased as fraudulent or unusable. For example, if they bought a coffee mug instead of a coffee mug, they may file the chargeback with their credit card company. The latter then reverses the transaction to prevent fraudsters from making fraudulent transactions and issuing new cards under false names. This article explores the ins and outs of protecting your business from chargebacks so that you can operate worry-free in the long term.  


What is a Chargeback?


A chargeback occurs when a cardholder disputes an item they’ve purchased as fraudulent or unusable. For example, if they bought a coffee mug instead of a coffee mug, they may file the chargeback with their credit card company. The latter then reverses the transaction to prevent fraudsters from making fraudulent transactions and issuing new cards under false names. This article explores the ins and outs of protecting your business from chargebacks so that you can operate worry-free in the long term. When a customer purchases an item using a credit card, they are obligated to pay the merchant (the company that sold them the product). However, if they don’t have enough money in their account to cover the purchase, the merchant will receive a “chargeback” notification via the issuing bank. The chargeback process is designed to prevent fraud, but it comes at a cost - it can severely damage a business’s financial standing.


How to Protect Your Business From Chargebacks


When it comes to chargebacks, the best defense is knowing your limitations and protecting your business from chargebacks as much as possible. Here are some ways to protect your business from chargebacks: - Know your limits - While it’s tempting to accept more credit card sales than you can handle, doing so puts your business at risk for chargebacks. This is because customers may file chargebacks against purchases that are significantly more than the original amount. - Know the risk of your products - If you sell luxury products, you should expect chargebacks to occur at a higher rate than if you sell affordable items. If your products are at a high risk of chargebacks, you should consider switching to a lower-risk product or changing the way you sell your product. - Keep track of your sales - If you have trouble keeping track of your sales, you should have a back-up plan in place. Chargeback notifications can be devastating to a business’s financial standing, so it’s important to have a plan in place to prevent them.


Determing the Risk of a Chargeback


When a chargeback occurs, it’s important to determine the cause of the chargeback. This way, you’ll be able to better protect your business from chargebacks in the future. For example, if a customer files a chargeback as a result of you pressing the wrong button, you’ll know to train your employees more thoroughly in the future. You also want to determine the risk of each type of chargeback. This will allow you to be proactive in determining the cause of each chargeback and determine if you need to take any preventative measures. Alternatively, it will allow you to quickly resolve a chargeback and prevent it from harming your business’s financial standing.  


The 3 Types of Chargebacks


Knowing the risk of each type of chargeback will help you better protect your business from them in the future. Here are the three types of chargebacks: - Manual - A manual chargeback occurs when the cardholder decides to file a chargeback against their own purchase. This typically happens if the cardholder doesn’t have enough money in their account to cover the purchase. - Cardholder - A cardholder chargeback occurs when the cardholder files a chargeback against a purchase that wasn’t initiated by them. This usually occurs if the cardholder is unhappy with their purchase. - Consequences - A chargeback with consequences occurs when a business receives two chargebacks in a short period of time. This typically occurs when a cardholder discovers a fraudulent charge on their credit card bill and reverses the transaction.


Learn to Identify the Risk of Each Type of Chargeback


Knowing the risk of each type of chargeback will help you better identify the cause of each type of chargeback. For example, if a customer files a manual chargeback, you’ll want to know if it has anything to do with your sales process. If a customer files a cardholder chargeback, you’ll want to know if it has to do with the product itself. Similarly, if a customer files a chargeback with consequences, you’ll want to know if they are filing another chargeback. This will help you better protect your business from each type of chargeback in the future.


Be Proactive in Determining Cause for Cause for Each Type of Chargeback


As you work to better protect your business from chargebacks, you should be proactive in determining the cause for each chargeback. This way, you’ll be able to quickly resolve a chargeback without doing major damage to your business’s financial standing. For example, if a customer files a manual chargeback, you should determine if it has anything to do with your sales process or the product itself. You should also determine if they received the item they purchased or received something else entirely. If a customer files a cardholder chargeback, you should determine if they received the item they purchased or received something else entirely. You should also determine if they are filing another cardholder chargeback.


Conclusion


Chargebacks are frustrating for both businesses and customers, but they are a reality of doing business. The best way to protect your business against chargebacks is to know the risks of your products and how to protect your business from chargebacks. To learn more about how to protect your business from chargebacks, continue reading our chargeback article. From there, you can implement the techniques we discuss to protect your business from chargebacks in the future.

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