How to Prevent Chargebacks and Disputes: 10 Best Practices for Merchants

Dealing with chargebacks can be a frustrating, time consuming and expensive challenge for any business that accepts credit cards. Over the years, we’ve seen our clients face these issues, and we understand how stressful they can be. But don’t be overly anxious if you receive a chargeback, it’s something that all businesses will experience at some point, even when they take every precaution.

While there’s no way to completely avoid chargebacks and disputes, there are steps you can take to minimize them. This is especially important because a high percentage of chargebacks can lead to increased merchant fees, affecting your bottom line. The good news is, by being proactive, you can reduce the chances of chargebacks and protect your business.

Here are some practical tips to help you avoid chargebacks and disputes:

1. Make Refunds Simple and Fast

One of the best ways to prevent chargebacks is to resolve issues before they escalate. If a customer has a problem, they’re likely to contact your business before turning to their bank. Make it easy for them to reach you. Have your contact information easily available to them, either through email or phone. Then handle their refund requests quickly. The faster you resolve their issue, the less likely they are to file a chargeback.

Make sure your return and refund policies are easy to find, clearly written, and include a straightforward process for requesting a refund. Encourage customers to reach out to you first, and make it hassle-free for them to get help. Do not take a refund personally, stay objective and remember this is a good business practice and your business and reputation will only improve if you make it easy for your customers.

2. Communicate Clearly

A lot of chargebacks happen simply because customers didn’t fully understand what they were buying, when it would arrive, or how to return it. To avoid these misunderstandings, be transparent about your products, services, shipping times, and return policies. The clearer you are, the fewer surprises your customers will encounter.

If you’re selling physical products, include detailed descriptions and high-quality photos on your website. Reach out quickly to let customers know if an item is out of stock or if there will be a delay. It is better to be proactive in these situations, your customer will appreciate the information. Once the item has shipped, keep them updated with tracking information so they know when to expect their order.

3. Use Recognizable Billing Descriptors

One of the most common reasons customers file chargebacks is that they don’t recognize a charge on their statement. Make sure your business name or a clear description of the purchase shows up on their bill so there’s no confusion.

Adding your website or phone number to the billing descriptor can help remind customers of what they bought and give them an easy way to contact you if they have questions.

4. Send Confirmation Emails

After every purchase, send a confirmation email that includes the transaction details. This email should include information such as the amount charged and a summary of the order. This email acts as a receipt for the customer and provides a record of the transaction, which can be useful if a dispute arises.

Include your contact information in the email so customers can reach you directly if they need to, preventing a simple question from turning into a chargeback.

5. Ensure Secure Payments

Fraudulent transactions are a common cause of chargebacks. To protect both your business and your customers, make sure you’re using secure payment methods. Implement tools like 3D Secure or multi-factor authentication to verify the identity of the buyer.

Fraud detection tools and strong authentication methods can help reduce the risk of fraudulent chargebacks and give you the evidence you need to dispute claims if they occur.

AdaptMS has safeguards in place, additionally we offer tools to help you to detect fraudulent transactions, but unfortunately no system can completely prevent such transactions. If you suspect possible fraud or attempted fraud, please contact us immediately so we can help.

6. Make Cancellations Easy

Subscriptions or recurring charges can often lead to disputes, especially when customers feel they’ve been charged after attempting to cancel. To avoid this, make the cancellation process straightforward. Ensure customers can easily opt-out, and confirm their cancellation with an email. Additionally, update your billing system promptly to ensure no further charges are applied after they’ve canceled.

Some businesses mistakenly believe that making it difficult to cancel will result in customers keeping the subscription out of frustration or forgetfulness. However, this is not a good business practice. Not only does it increase the risk of chargebacks, but it can also damage your business’s reputation in the long run.

A well-known example of this is SiriusXM, the satellite radio provider. In 2014, SiriusXM paid a $3.8 million settlement after legal action by 46 states and the District of Columbia. The company was accused of making it unnecessarily difficult for customers to cancel their subscriptions, which led to widespread complaints and legal consequences.

7. Deliver On-Time

One common reason for chargebacks is when customers don’t receive their products on time or are unsure of when to expect them. To avoid this, set clear expectations for shipping times upfront and keep your customers informed throughout the process with tracking information. If there is a delay, be proactive and communicate this as early as possible so customers know what to expect.

For added protection, you might consider charging customers only after their order has shipped. This approach can minimize confusion and reduce disputes over non-receipt of goods. Many businesses find that authorizing the payment when the order is placed and completing the transaction only once the product has shipped helps prevent these types of issues.

8. Keep Detailed Records

If a customer does file a chargeback, detailed transaction records are your best defense. Keep copies of invoices, shipping confirmations, and any communication you’ve had with the customer. These records can be submitted as evidence to your payment processor if you need to contest the chargeback.

Documentation like signed delivery receipts or proof of shipment can make all the difference in winning a chargeback dispute.

9. Respond Quickly to Chargebacks

If you do receive a chargeback, don’t ignore it. Respond promptly and submit all the evidence you can to support your case. This includes any proof of purchase, delivery, or communication with the customer.

Be aware of the timeframes for responding, Visa, for example, gives you 20 days to dispute a chargeback, while MasterCard allows 45 days.

10. Review Your Chargeback Activity

Regularly monitor your chargeback activity to identify patterns and address any recurring issues. If you notice that certain products or processes are leading to more disputes, it’s worth reviewing your operations to make improvements.

Conclusion

Chargebacks are just part of doing business when you accept credit cards, but they don’t have to be something you constantly worry about. By following these simple steps—like making refunds and cancellations easy, keeping your customers informed, and using secure payment methods—you can greatly reduce the chances of disputes. The goal is to stay ahead of the game: communicate clearly, provide a smooth experience, and keep good records. Not only will this help lower chargebacks, but it will also build trust with your customers and improve your reputation. Taking these steps now can really pay off in the long run.