Online Business

Online Business Owners: Do You Know What Chargebacks Are?

If you own an online business, there is one very important thing you must know about.  Ironically, it also happens to be a component of business that few people talk about.  They probably don’t talk about it because it is such a depressing topic.  After all, no one wants to think about all the profits they lost or the exorbitant fees they had to pay.

What is this phenomenon that causes so much financial distress?

Understanding Chargebacks

Chargebacks are basically a credit card refund.  Customers use them as a way to ensure their credit card safety and purchase satisfaction.  The two most common reasons customers file chargebacks are faulty customer service and fraud.  Specifically, chargebacks are usually instigated because…

  • You accidentally overcharge the customer.
  • You failed to discontinue a reoccurring transaction in a timely fashion.
  • The product never arrived at its final destination.
  • The customer claims the product never arrived at its final destination (although it did and you become the victim of “friendly fraud”).
  • The card was used fraudulently or the cardholder didn’t authorize the transaction.

Online Businesses are Especially Susceptible

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Every business owner needs to be on the lookout for chargebacks.  However, online business owners are especially vulnerable to chargebacks?  Why?  All online credit card payments are fall into the category of card-not-present transactions.  These transactions are especially helpful for fraudsters.

Let’s take a look at the numbers:

  • In 2009, chargebacks cost the American business owners more than $11 billion.
  • If a customer files a chargeback, they are nine times more likely to do it again.
  • The merchant must pay a fee for every chargeback file against them.  That fee can range from $20 to $100 per chargeback.

What Do You Need to Do?

If you own an online business, there are three very important things you need to do.

First, you need to do everything in your power to detect and prevent fraud.  Visa provides merchants with this resource guide.  The credit card company lets you know which tools you should be using to prevent fraud.  They also share tips on how to identify possibly fraudulent transactions.  Take a careful look at these resources.  Become an expert at detecting fraud.

Second, you need to beef up your customer service.  If your customer are satisfied with the products and services you provide, they are far less likely to instigate a chargeback.  Take a look at these suggestions for enhancing your customer service and ultimately preventing chargebacks.

Lastly, you might need to get some professional help.  If your chargebacks account for more than 1% of your total sales, the credit card processor can fine you $5,000.  If you fail to instigate chargeback management, the fee will double just two months later.  If they soar above 2-3% of total sales, the processor will terminate your account.  If that happens, you won’t be able to get another merchant account and you’ll have to stop accepting credit card payments.

A professional can help you get your fraud detection skills and customer service under control.  These steps will help prevent chargebacks.  But more importantly, they will help prepare you to fight chargebacks.  Merchants report they win 40% of the disputes they file.  With professional help, the success rate is closer to 80%.

For each chargeback dispute filed, there are additional fees – close to $350.  The loser must pay up.  With professional chargeback assistance, the chance of winning, avoiding future fines, and recouping lost profits significantly increases.

More than half of all online companies go out of business as a result of chargebacks and their accompanying fees.  Don’t be one of them.

Attached Images:
  •  License: Royalty Free or iStock source: http://farm5.staticflickr.com/4118/4758159627_d1122bf51a.jpg

Ted Lamphere is a business professional with years of experience.  He has recently joined forces with Chargebacks911 to help businesses reduce chargeback fraud.  By shedding light on the situation, Ted hopes to help even more businesses prevent chargebacks.  Ted wholehearted supports what Chargebacks911 is doing and wishes they had been around when he launched his first business!  If you want to discuss the services provided by Chargebacks911 or hear more about his own personal experiences, contact Ted on Google+ or Facebook.