FAQ Friday Part II: How These Chargeback Prevention Strategies can Help Your Business And Keep More Money In Your Bank Account
Mar 26, 2021 6 minute read
On our last FAQ Friday, I started sharing some easy tips and tricks you could employ right away to avoid chargebacks from happening. These provide the biggest bang for your buck in preventing chargebacks, so if you missed that post, you can go here to read it.
Here’s just a recap of some of the information shared:
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Why you should focus on customer service to prevent unsatisfied customers from contacting their bank…
Find out which traffic sources you should be analysing to find easy “wins” in saving chargeback fees..
In continuation of our last FAQ Friday, let’s begin with a quick recap on chargebacks and what they are.
A chargeback is a dispute or disagreement between a cardholder and a business. This is not the same as a return or refund, and there’s normally a penalty issued every time there’s a chargeback.
Unfortunately, there are progressive penalties for repeat offenses of chargeback disputes.
There are three main types of chargebacks:
- The unauthorized use of a credit card (fraud)…
- Chargeback fraud, where the cardholder has intent to fraud your business and is trying to get away with it…
- And friendly fraud due to an honest mistake from a cardholder.
In today’s FAQ Friday, I’m going to start by covering best practices in dealing with friendly fraud chargebacks, usually caused by human errors like a customer being unclear about what they may have ordered, forgetfulness, or for reasons due to miscommunication from either the customer or the business.
At the end, I will explain what you can do once a chargeback happens if you’re in a high risk space or business. You’ll discover how you can recuperate a portion of the money or other possible solutions to minimize losses after chargebacks occur.
Last time I ended at number 5…
So continuing from our last chargeback prevention strategies, let’s move on to the next tips and tricks I want to share with you…
#6: Email Their Sales receipt and Upcoming Payments as a Reminder and Marketing Tactic
In part 1, I wrote about how to use a clear payment descriptor when a customer goes back and checks their statements at the end of the month.
This will help clear any confusion because they will recognize where the charge is coming from.
Emailing a copy of their sales receipt is a good idea to remind the customer of their latest purchase(s). This is also a great excuse and marketing tactic to have them allow you to use their information and follow up with additional sales offers you may be having.
You should be able to set the permissions to automatically enter a customer’s email and have the software programmed to send the receipt to your customer upon purchase.
If you have recurring billing plans for certain customers, sending billing reminders and receipts in advance for a charge that will be made is another idea you can implement to prevent any unwelcome surprises.
This gives the cardholder time to anticipate any upcoming charges. It also gives you the opportunity to sell them more products so don’t see sending a subscription receipt as killing your customer LTV.
#7: Deliver Products As Soon As Possible…
When charging a client in advance, make sure to execute work orders and fulfill deliver products as quickly as possible. This ensures the customer is waiting the least amount of time possible to receive their order.
A less popular idea is to charge the customer for the products or services at the time of delivery. Even though this may be an unpopular option, it can be a possible solution for certain types of businesses and worth mentioning, especially if you’re in a high chargeback situation and need to lower your ratios.
#8: Eliminate Late Fees and any Other Service Fees Customers Are Likely To Object to…
You can eliminate late fees or additional shipping fees added to a charge if you feel a customer will dispute the transaction. For higher dollar amount transactions, you may want to decide whether a $10 or $20 late fee is really worth it to you…
Of course you wouldn’t want to do this if it’s a part of your business model or a part of your service, but you want to make sure it’s clearly stated if there’s a $10 or $20 late fee when they go a day past the due date.
What’s most important is to make sure your customers are aware upfront.
What to do Once a chargeback happens and you’re in a high risk space or business…
The previous approaches mentioned in part 1 and in the beginning of part 2 are really to minimize as many chargebacks as possible before they happen.
Because there is no 100% way to prevent chargebacks and refunds from occurring…
Once a chargeback happens, and you’re in a high risk vertical space or business, it’s important to know how you can recuperate a portion of the money, or other possible solutions to minimize losses after chargebacks occur.
#9: Alert Systems and Dispute Companies…
The difference between Reactive and Proactive Approaches
There are a couple of reactive approaches, called alert systems. Alert systems like Ethoca, Verify, CDRN, and visa-mastercard-purchase inquiry (VMPI) are also proactive approaches in a way that the transaction gets refunded before it becomes a chargeback.
I consider it a little bit more of a reactive approach than proactive. This is because the Ethoca, Verify, or VMPI alerts cost between $25 and $40, depending who you’re working with and the number of alerts, so you’ll get charged that fee in addition to losing the money of the transaction.
For example, if you get an Ethoca Alert, you can be charged $30-40 on top of losing the initial $50 transaction…
It’s very expensive to pay for this type of alert, but if you’re a high risk merchant and you need to keep your chargeback rates as low as possible, then it’s a really good tool.
You should however, always keep in mind the steps I outlined before are more important because they will prevent you from paying the alert fee in the first place.
If you’re in high risk industries selling supplements and/or adult content, these can be used as extra assurances and you should sign up for them to reduce problems with your processors and keep your chargebacks in line.
The bigger issue is ultimately preventing chargebacks by using the previous tips and tools and then adding these types of alerts to minimize the possible problems you may have.
That’s because, not only are alerts expensive but there are a lot of, what we call, false positives…
As an example, if you’re a US merchant and are billing someone in the UK, this would be considered a foreign transaction and could sometimes trigger an alert if the UK customer never buys anything from somebody foreign.
Even if it’s a legitimate transaction, the customer could call their bank to see what the charge was and you would receive an alert because it could be a potential chargeback causing you to refund.
Most of the time, you should take the action of refunding because that’s the only way you’ll prevent the chargeback…
Just keep in mind these alert systems can be an effective tool, but as I said before, always use the previous steps to clean up your processes and rely on this as little as possible.
A more reactive approach and things you can do to recuperate your funds would be using chargeback dispute companies to get them back.
While there are legitimate cases to use these services, disputing can be very expensive.
If you get charged $25 as a chargeback from your processor, and you lose the funds of $50, you’re already down $75…
If you use a chargeback dispute company, some of them will charge a percentage of the money they win back and some will charge a per dispute fee, which could be between $8-10.
So if you lost $75 and you lost $10 to dispute it, your processor might charge you a reversal fee as well.
Make sure to look at your processor statements to see how many chargebacks you’ve gotten and how many chargeback fees you’re being charged.
If at the end of the day your transactions are $30-50, and you get charged two chargeback fees, one for the chargeback, one for the reversal, plus a dispute management fee from a company…
It might not be worth it and better to just accept the chargeback and move on.
You can also speak with your processors and explain you want to dispute certain chargebacks you think may not be legitimate.
They can then decide whether to remove these types of fees depending each situation.
#10: Removing Repeat Refunders…
Once a customer has charged back or refunded a product or service, as a merchant, you might want to consider banning a customer from buying again.
Best practice is to avoid repeat refunders…
You or an employee should go over your chargebacks on a daily or weekly basis and have any repeat refunders blocked from making any purchases again. Don’t just block the card number, block the email and anything else that can be unique to him or her.
These are things that, as merchants, we can forget to do but are really important because it’s usually the same customers that keep charging back. Sometimes just because they know they can get away with it.
As a tip, Q1 is always the largest chargeback period because it’s the post-holiday crunch and a lot of customers go crazy during christmas only to realise how much they’ve over spent..
Merchants suffer because these customers end up charging back around January or february..
This is just another reason for how important prevention is at keeping your chargebacks as low as possible.
I also recommend to track all the changes you make on a spreadsheet. If you ever see a difference in conversions, you’ll be able to go back and see why that may have happened or if it was because of any changes you may have made.
Keep in mind, fighting chargebacks not only costs money but it costs time and valuable resources. Sometimes it makes sense to hire a chargeback management company to handle the task for you.
Here at DirectPayNet, we are experts at devising winning chargeback prevention techniques, those mentioned above are powerful tools, but they only represent a fraction of strategies that gain results. Stay tuned to view part two, where we tackle post-chargeback management strategies!