Money Chargebacks and Your Business

Taking money from consumers brings with it a host of legal issues, such as chargebacks.
 
 In this episode, we will talk about what a chargeback is, how to handle it, and how to avoid it.
 
 Full show notes & links to resources mentioned: https://rachelbrenke.com/epi11/
 
 Join the Business Bites Podcast® group to chat about this episode: https://rachelbrenke.com/group

Transcript

Speaker 1 (00:00):

Welcome to the Business Bites podcast, the podcast for busy entrepreneurs. Whether you're an online entrepreneur or seeking after brick and mortar success, this podcast brings you quick bites of content so you can learn and grow anywhere you are. Now, here's your host, Rachel Brenke. Speaker 2 (00:17):

Welcome to this episode of The Business Bites. My name is Rachel Brinke and I am your lawyer and master business consultant here to help you today a little bit with a not so fun topic, but yet let's just consider it completely fun because it does have to do with money in the end, or rather keeping money in your pockets. I want to talk about preventing and or fixing chargebacks that happen in your business. We have credit it's cards and debit cards. I probably don't know anybody in my life that does not have at least one of these, and they supposedly make our lives easier. I mean, in theory it's supposed to be super easy. In fact, we probably have it stored into our phones on the computer, LastPass, whatever it is that you're using. Credits and debit cards are supposed to make it completely easier for us.
(01:03)
They have convenient perks, but they come unfortunately as business owners with a bunch of new things that we have to consider not only as a business owner, but also if we are a consumer partaking in business with other businesses. I want to talk to you guys about a chargeback. If you haven't heard what a chargeback is, you probably have never dealt with a customer or a client doing it to you and you may have not been victim of identity theft. Essentially, a chargeback is win. A financial institution that is transferring the funds from the consumer or your client. It's either by a debit or a credit card, and they forcibly return the funds from the merchant, which is you, the business owner, back to the consumer. This ability to reverse a transfer was created through the Truth and Lending Act for credit cards and blah, blah, blah, blah, blah.
(01:53)
It happens for a couple of different reasons, and I kind of already listed them, but for specifically in cases of identity theft or when an item was never received or if the item product service is substantially different than what is advertised. All of these are consumer protection, which we're glad that we have that. The unfortunate thing is that it can be a double-edged sword, and if you get a crazy client, you may or customer, you may end up having to deal with one of these chargebacks. This protection can incentivize merchants to provide the customers with quality products, services and good customer service. The unfortunate part is a lot of times I see chargebacks occur in a couple of different ways. Really popular one, which is not necessarily detrimental to either party, but sometimes a customer forgets or doesn't recognize the name on the card on the statement and they don't know who it's from.
(02:51)
They go ahead and initiate a chargeback thinking that it was situation number one, the case of identity theft or they just have no idea what's going on, and so that's good. That's benign. You can end up talking to them later. You can show your demonstration that they did know who it was and hopefully you can get that money back from the consumer. Another situation that I often see this in is when a customer is unhappy with their product or service, and it may not even be that they're upset with the product, but it may be the customer service that went along with it. And then another situation. Oftentimes you see people who are just really bad customers, really bad people, and they never intended to truly pay for the product or service to begin with, and they initiated chargeback on one of these claims of it being substantially different than this advertised.
(03:41)
They never got it or they don't recognize, and obviously that would be fraud because all of that is not correct, but there are people out there that this happens with. So the process of how this happens is the consumer can begin the chargeback process. They call their financial institution, they file a complaint regarding the specific charge or transfer, and it's often in one of the situations that I just outlined, but if the financial institution deems the complaint valid and reverses the charges, the unfortunate part is not only do us as the merchant, we lose the money for the product or service, but we also end up getting an additional fee, which can be between $15 to a hundred dollars. It's a chargeback fee. I know for sure that when PayPal has chargebacks, they definitely charge this fee for sure, and that really sucks. So in addition to losing the original money that was paid and the chargeback fee, you can also end up losing the product because you're probably never going to get back at this point and the shipping and handling costs that went out as well.
(04:40)
So what am I trying to tell all of you guys for this? I want to counsel you a little bit on what to do when you are on the merchant end of a chargeback. So if the financial institution has reason to believe that the chargeback is valid, they will then issue your client a temporary credit, which is going to be debited from you, the merchant's account. You're going to get a notification of the chargeback. This could be a phone call, email, online chargeback system. I know a lot of times the ones that I've seen have been by email because they want to have written documentation at this point. This is when you need to submit documentation to challenge the charge jack, and if it's successful, you can get the money return to you. The exact process of how to submit is going to be varied from financial institution to financial institution, but this information by the financial institution of how you need to submit and what you should submit is going to be readily available.
(05:30)
Make sure that you follow all of this is super important. Super listening and especially if you use PayPal or Swipe or one of those other systems online, make sure you follow all of the financial institutions rules in responding and make sure that you follow all of any solar protection policies as well. Otherwise, your challenge may be rejected and it's very hard to open it back up. Some of the things that you need to consider having to submit would be if you were offering a service, maybe that services agreement, if it's an online purchase, whatever the purchase terms were, as well as documentation of IP tracking addresses, signatures, the card submission, the method in which it was done, when it was done, the time it was done, as specific as you can be as possible, then that is going to help your case when you make the argument to the financial institution that you should not have been subjected to the chargeback.
(06:24)
So that is pretty vague it seems like, but really I'm telling you guys, go to the financial institution and find out what exactly you need to submit and how to submit it, and they will provide you a checklist of what you need to do. But before all this, we want to try to avoid chargebacks in the three situations that I gave you at the very beginning. The third one, obviously people that are fraudulent, it's very hard to identify them upfront and it's going to be hard for us to avoid it, but oftentimes we can try to also avoid the situation when people feel like it was unsatisfactory. And I'm going to walk through a little checklist for you guys here because the bulk of 'em, from my experience, the chargebacks often result in mistakes and can be avoided. Therefore, there are many ways that you can help protect your business from unnecessary chargebacks.
(07:08)
Many of the major financial institutions have provided merchants with suggestions on how to avoid, and here are the suggestions that they've given and I agree with. First is a proper swipe process. Do not repeat a transaction that has received an authorization request decline. Notice if you run a transaction and receive the call message, then you need to call the authorization center. If you do not have a magnetic strip reader or the chip reader as now is totally has the world and upheaval, do you swipe? Do you chip? We don't know. But if you do not have those readers in addition to King and the credit card number, take an imprint of the card. If you're able, I know this is going to live bit by the wayside, and if you're doing things online, obviously you're not going to be able to take an imprint of the card.
(07:50)
Another part of the popper swipe process is only swipe or make the imprint of the card once multiple swipes can lead to possible duplicate deposits and thus chargebacks. And yeah, it made it sound like, oh, it's okay if it was a duplicate transaction and I got a chargeback because that wasn't my fault. The unfortunate part is when chargebacks occur, it can look negative on you as a merchant and you can end up being rejected from being able to use online processing systems or any processing systems, any authorization type of companies. You just end up getting a ping against yourself. So you want to try to not have duplicate charges. That one may result in a chargeback. You want to try to make sure to refund those if you see duplicates as well. I know my online systems trigger if there's a duplicate so that I can go in and go ahead and double check and refund it before someone tries to do a chargeback because I don't want the help the health of my business on that side to look negative simply by a mistake because electronic stuff happens and duplicates can occur.
(08:48)
Also, make sure that each transaction is entered and deposited once already said that void all incorrect receipts and restart a transaction, the case of a mistake rather than processing twice and get a signature. Oh my goodness, get a signature please. And a signature can also include your, if you are taking debit cards with the proper pins, proper deposit process, make sure you deposit sales receipts with your bank, ASAP. Otherwise, a chargeback can result for late presentment of the sales receipts and deposit receipts with your acquire as SAP to avoid chargebacks for credit not issued. Okay, so those are all just kind of common sense things because we all use credit cards and debit cards. We know how that works. But another things that we can do that's little less tangible, but just provide good customer service. Please disclose all the return refund and cancellation policies at the times of the transaction, not just to communicate with your consumer and to build or buyer confidence, but also so that if you ever need to dispute a chargeback, they can see that the consumer was educated on these policies.
(09:49)
And if a consumer has a recurring transaction with you and request it to be canceled, respondent processes cancellation. ASAP. If the cancellation is going to take a couple of days, make sure you inform the customer of the fact that it may take a couple of days for a transaction to be stopped. Keep your clients updated on the status of their order and provide refunds if necessary, which I already mentioned, but make sure you only refund back to the original car number and do so individually for each transaction. Some good shipping tips if you have some goods ship only after the depositing transaction to avoid a chargeback for not receiving the item. If there is a delay, please communicate, notify with the customer in writing and include any new dates. If the delivery is going to be delayed or you cannot provide the item, let them know In writing, writing, writing, writing, writing.
(10:34)
We're going to be covering our butts here and offer options such as a substitution of another item or cancellation. And for online transactions specifically, make sure that transactions are performing an automated address verification required. The card verification value, that's the three digit on the back of the card as well. So I just want you guys to keep this in mind that chargebacks do occur even with the high volume that my businesses go through. There are very few and far between the number one issue that I've had of chargebacks, which is unfortunate, but customers just don't remember that they purchased something or an employee did it and the business owner doesn't recognize it, and so they automatically do a chargeback because they jump and assume that it's identity theft. And this is where I'm cautioning you guys as business owners, if you are on the consumer end and you see a charge, whether it's a duplicate or you think it's unauthorized, and you have a reach out to that business first so that they can explain to you what the purchase was so they can provide the refund we don't want to do to other businesses and what we wouldn't want a customer to do to us, we want them to call us so we can fix it so that we don't have any history of negative chargebacks on our accounts.
(11:47)
We want to try to keep everything as happy and healthy for everyone as possible, but again, we're going to into people that do have the fraud, especially if you're in the services and digital product industry, especially online. You're going to find a lot of people think that they can get around, get around the policies and such by just saying they never receive something or that it was unauthorized because how can you prove that it wasn't them or not? People come up with all sorts of fraudulent excuses and it's unfortunate, but it's just a cost of doing business, unfortunately. But don't let me scare you these really few and far between. Just be vigilant to know that these are these situations that you can run into. I've given you guys a checklist. You can head over to the transcript and look at it. It'll be all outlined for you, all the tips that you need to know, what you need to keep, how you need to do it, and some good prevention ones as well. And I surely hope that you guys never face this in your business. I know I always feel slightly insulting when someone does a chargeback, especially when I know I haven't done either wrong, I've delivered properly and I've done the best that I can. So to go forth and try to protect your business, prevent these chargebacks as much as possible, and be respectful of other business owners when you are at the consumer. Speaker 3 (13:04):

If you've enjoyed today's episode, please just click subscribe as well as leave a little review of feedback so I know exactly what you guys want to hear. Also, if you want to see any transcripts, tweetables, or other resources, head over to rachel bra.com and click podcasts and all of the episodes are listed there for your review as well. Speaker 1 (13:21):

Thanks for joining Rachel on this episode of The Business Bytes. For show notes, a list of recommended tools or referenced episodes, you can find them@businessbytespodcast.com. Until next time.