Managing Chargebacks

Dealing with chargebacks in the Direct Selling industry is inevitable. If you are a seasoned vet, you know this all too well. If you are new to the game, you will quickly learn. Just as in life, it is not what happens to you but instead how you handle the situation.

Chargebacks are bad because in the least, they lead to additional fees and fines, higher merchant processing rates and even higher and longer-term reserves, which can cripple your precious cash flow. In the worst case, they can be the cause of your merchant account being shut down completely.

In this article, I will explain why chargebacks are not the enemy, but instead a metric for how well you are addressing several aspects of your business. As with any comprehensive strategy, we must consider the offensive and defensive aspects.

OFFENSE

In most cases chargebacks are completely avoidable. Remember, a chargeback doesn’t just happen. It starts with your customer reviewing their credit card statement, not recognizing your charges, and taking action.  Here are three things you can do to avoid chargebacks:

#1 – Be 100% Sure How Your Descriptor Reads on a Customer’s Credit Card Statement.

Don’t just take someone’s word for it, be your own customer and see it for yourself. If you have multiple Merchant Processing accounts, make sure and address every single one. It should clearly state your Company or DBA name along with the phone number for customer service. This is the single most important thing you can do to minimize chargebacks.

#2 – Clearly State Your Pricing and Terms on Your Literature and Website.

On your website, evaluate your checkout process to see that it is easy to use and comfortable for even the novice eCommerce user. Make sure that it clearly shows the price, plus ancillary fees like shipping and tax.  Double check the numbers add up correctly.

In regards to your terms, make sure that it is easy for the customer to see and understand the return, exchange, and even cancelation policy so they know what they are getting into before they have committed. Make sure the user has to check a box or boxes so they can agree to your terms.

For recurring fees like subscription based services, make extra sure that the customer understands the nature of the ongoing fees. Maybe even more important is to make it easy for someone to cancel any subscription service at any time (such as a button in their online customer portal that says “Cancel My Account”). This can actually increase customer retention when they know that you are thoughtful enough to provide them with the ease of doing so. At the end of the day, if you are not sure if you are doing a good enough job in this area, then you probably aren’t. Remember that chargebacks hurt worse when they go back over a period of time.

#3 – Have Fast Customer Service.

Most times when a reasonable person has an issue with a charge on their card (assuming that they are easily able to find the contact information for your company), they will call you first. In this case, you need to have quick processes in place for refunding customers with valid claims. If you are able to manage all matters and maintain happy customers, you can avoid quite a few chargebacks.

DEFENSE

I have to clarify that it in my experience, many people are not reasonable, especially when they are dealing with what they believe to be someone taking their money in bad faith. Many people skip any attempt to communicate and issue a chargeback without hesitation… so that means that you need to be ready to dispute and win it.

Defense comes down to three clear steps:

#1 – Monitor Your Chargebacks.

Merchant Processors usually do a very poor job of communicating anything. In most cases you could be experiencing chargebacks and won’t know about it until too late, and that’s assuming your books are tight. Because of this, it is on you to understand with 100% clarity how you go about monitoring chargebacks with every Merchant Processor you have.

In one corporate restructuring I oversaw, I had a member of the accounting team call in weekly to every processor we had to check in and see if any chargebacks had come in that week. It was not their favorite thing to do, but they put it on their weekly calendar. This enabled them to react quickly to new chargebacks, which ended in us winning most all of our chargeback claims while we addressed the offensive strategies above as a parallel path.

#2 – Fight Your Chargebacks.

In order to submit a response to any chargeback that has been initiated against your company, you need documentation. Each processor may have slightly different forms or requirements, but what it boils down to is the speed in which you respond as well as the documentation in your response. In order to be efficient, I recommend that you put together a Chargeback Response Template. There are 3 parts to a successful template:

A – Cover Letter. This cover letter needs to be highly customized to state the specifics of the said chargeback claim and your position that it was legitimate. Clearly summarize all exhibits that you are including.

B – Website UI Documentation. Have color printouts of your shopping experience to show where the customer can clearly see all aspects addressed in #2 above in the OFFENSE section regarding pricing and terms. Go as far as having arrows and circles drawn to illustrate these points so the Merchant Processor can clearly see that you are legitimate.

C – Full Copies of All Terms. This includes Terms & Conditions, Terms of Use, Guarantees, Return Policies, etc. Have them labeled as exhibits and referenced in your cover letter.

 

I hope this helps you shape or re-shape your procedures in relation to managing your chargebacks. Taking these strategies and turning them into action items within your organization can truly make a difference in your customer’s overall experience with your company and reduce or hopefully eliminate any issues related to chargebacks.