Credit card reconciliation provides your business with much more than just a neat accounting and cash flow platform for payment data. Apart from the obvious benefits of accurate and detailed financial information always at your fingertips, Credit card reconciliation gives your company many more advantages to support ongoing financial stability. One, often overlooked yet essential, benefit is the ability to better deal with chargebacks.
A chargeback is not simply a credit (refund) transaction. For a refund, you as the merchant decide to repay a cardholder who is not satisfied with a purchase. A chargeback, however, is a dispute where a forced refund is initiated by the cardholder through their bank. Chargebacks occur when the customer’s bank reverses a payment the customer made when purchasing your product. After the customer’s claim is accepted by the bank, the charge is returned to the payment card provider. You, as the merchant, are then responsible for investigating what happened and paying the required fees.
This process is far from simple, however. While it may not take long for the bank to approve the customer’s claim and remove the funds from your account, investigating the occurrence on your side requires a lot of time investment and the fees taken are usually non-refundable.
The Customer Perspective
The option to claim a chargeback provides customers protection from fraudulent use of their card or a breach of contract by the merchant.
While consumer protection is of utmost importance, chargeback fraud spanning international borders, has meant that unsupported chargeback claims has grown and so has its effect on businesses.
The Merchant Perspective
Chargebacks impact the financial stability of businesses. Since they are unpredictable, cash flow is affected, with disputed funds often being held for as long as three months until the dispute is settled.
Chargebacks force your company into a lawsuit and require you to take on charges without prior investigation. If you have quick access to accurate credit card payment flows, you can prevent some of the obvious chargebacks or help your business present evidence of unsubstantiated claims.
The Chargeback Process
The chargeback process may differ between cardholders. Most of the general steps, however, remain the same. With a resolution taking anywhere between 60-90 days.
- A chargeback occurs after a customer makes a purchase using a credit or debit card.
- The customer initiates a chargeback after noticing something unusual on their card statement. (further reasons discussed below)
- The cardholder’s bank then requests documentation from the merchant’s bank to prove the purchase and transaction value was valid. This includes documents such as invoices, receipts or proof of delivery.
- After reviewing the information the cardholder’s bank then decides whether the transaction was valid.
- The customer is notified and receives a refund to their cardholder if their claim was accepted.
- Arbitration, handled by the credit card company, is a last resort available if either party wants to continue the dispute.
Reasons for Chargebacks
Customers may dispute a transaction for a number of reasons:
- Fraudulent transactions: When a customer sees a charge on their statement but never made a purchase, it means fraudulent activity has taken place.
- Shipping and delivery issues: When a customer makes a purchase but does not receive it.
- Pricing issues: When a customer is overcharged for a product or service.
- Credit not received: When a customer returns an item but does not receive the refund or a credit to their account after returning the product.
- Customers not satisfied with the product or service: A customer may file a dispute when they are not satisfied with a purchase or the item received is not as advertised.
- Your business name differs: If customers make a purchase from your company but your business name differs on the statement, it can lead to confusion and a chargeback request.
- Recurring payments: When a customer forgets to cancel a recurring payment or subscription they may request a chargeback.
What You Can Do about It
To prevent chargebacks being requested, your company can make sure to have in place terms which clearly address them from the onset. Some safety measures include the use of secure EFT/POS devices approved by the Visa/Mastercard provider in accordance with EMV and PCI guidelines. In e-commerce, it is even more important to only accept transactions that comply with the latest security regulations, because most card misuse still takes place in online commerce.
To reduce the risk of shipping and pricing issues, your company should have tracking numbers for every order clearly recorded and accessible. Prices should be up-to-date and clearly stated. Shipping with a delivery service where the customer signs upon receipt gives you vital information as well.
When a customer requests a credit or refund it is vital your company has a good accounting system in place to process those refunds quickly and accurately. Furthermore, outlining your return, refund or cancellation policies goes a long way in helping your company win disputes over those terms. Make sure your company name is consistently represented on every place where customers interact, so they recognize it on their card statement.
If your offer includes a recurring payment, make sure the customer has information on what to expect when they sign up. A reminder sent to the customer before each charge can go a long way in avoiding this unnecessary chargeback situation if the customer wants to cancel.
Protect Your Revenue with Automation
A robust credit card reconciliation platform, such as ReconHub, goes a long way in supporting your business’s long term financial strategy and stability. Chargebacks and credit card fraud may be unavoidable, but their impact can certainly be reduced with accurate and up-to-date payment flow data. The ReconHub platform provides you with detailed information at the individual transaction level, so you can monitor and detect unusual activity as and when they occur.
