What is a Chargeback?

Accounts Wizard
November 16, 2020

If your business is a high-risk merchant account for a credit card processing company, it’s essential to know what chargebacks are and how much chargeback fees can affect your bottom line. When you arm yourself with more information about chargebacks, you’ll be able to take the proper steps to course-correct and potentially prevent them in the future.

What are Chargebacks

Sometimes, a cardholder will dispute a charge that appears on their monthly bankcard statement, or someone discovers that they didn’t follow the proper bank card acceptance and authorization procedures. The distinguished difference between a refund and a chargeback is instead of contacting the business for a refund, the consumer asks the bank to take money from the business’s account forcibly. After the bank investigates, if the bank feels the cardholder’s request is valid, funds are removed from the merchant’s account and returned to the consumer. The downside is that the consumer isn’t obligated to return what was purchased.

If this occurs, your bank or processor will notify you and debit the amount from your account, which is called a “chargeback.” Half of all chargebacks are due to unauthorized charges, which can cause your business’s unwanted fees and make it more difficult to find a credit card processing provider to take you on as a client.

How Much are Chargeback Fees

A merchant sustains fees and administrative fees every time a consumer files a chargeback, hurting their profit margins. Chargeback fees can range from $20 to $100 per incident. Although those numbers seem small, they can make a lasting impact because the customer isn’t obligated to return the product to you. In addition to the fees, you also lose out on profit from the unreturned item. Many merchant services providers require a reserve of funds for businesses that have a high number of chargebacks. This restricted money access can cause your business’s cash flow challenges and create a chargeback rate in the long term.

This rate can cause further revenue problems because if a merchant’s chargeback rate is too high—typically over 1 percent—your bank can terminate you as a merchant account. It’s damaging to your business because when terminated, the bank revokes your ability to process credit card payments, which puts your business in a difficult situation to recover with sales. Although a merchant can dispute chargebacks to recuperate revenue, it does not improve their chargeback-to-transaction ratio. The bottom line is that chargeback fees have minimally cost per dispute but cost much more long term between administrative costs, unreturned product, and potentially losing out on sales if your account freezes due to bank termination.

How Can You Prevent Chargebacks

Chargebacks can cause many problems for your business’s success. It’s worth your time and money to improve your business and payment processes to stop the preventable losses that come with chargebacks and chargeback fees. Aside from investing revenue in preventing future chargebacks, there are other ways you can avoid chargebacks and chargeback fees.

  • Make explicit billing descriptors on customer’s credit card statements.
  • Remain proactive and accessible, so customer inquiries diligently.
  • Post return and refund policies that are easy to understand.
  • Share specific delivery policies for high-value items that require signatures to confirm receipt.

Prevent Chargebacks with WizoPay

Besides improving your business practices, choosing a merchant account (provider) with experience in high-risk industries puts your business at an advantage. When you can communicate easily with your credit card processing provider, you can resolve most issues without filing a chargeback.

At WizoPay, our expert team has experienced the chargeback process from beginning to end. With our industry knowledge, we assist our merchant accounts and offer insight into how they can prevent chargebacks. You’ll spend less time worrying about chargeback fees and chargeback-to-transition ratio and spending more time growing your business.


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