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Chargeback troubles? Fight back with these key steps

By Brian O'Connell

Retail business owners don't like operating in reverse, but that's exactly what happens, at least from a financial point of view, when chargebacks haunt their bank accounts.

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What are chargebacks? In a word, they're basically credit card transactions that are reversed when a customer's card is stolen or lost, the transaction or charge is disputed or there is some kind of credit card processing mix-up regarding the actual transaction.

Merchants view chargebacks with complete frustration, if not outright fear. In the financial balancing act that defines chargebacks, it's the business owner who is responsible for the money "charged back" to his or her company. To get the money popped back into their checking accounts, merchants have to prove the credit card transaction was legitimate -- which is not an easy task, especially if the customer doesn't want the purchase anymore.

For perspective, put the problem in everyday terms. Imagine having $2,500 pulled from your bank account after you already used the cash to pay bills -- all because a customer disputed the transaction. In most cases, it may take a day or more to prove the charge was legitimate; but in the course of that time, your checks go bouncing and the bank fees and penalties start piling up. To add further fuel to the fire, the credit card company may charge you a "handling fee" for dealing with the chargeback on their end, usually up to $15-$25 per chargeback.

Now, let's double the fun and imagine multiple chargebacks happening in the same 24-48 hour period and having even more cash pulled from your bank account. No doubt, many merchants might prefer a root canal.

So how do you solve a thorny problem like a chargeback? The answer is simple, but highly effective: Just get in front of the problem. Here's how to prevent some of the most common causes of credit card chargebacks:

1. Act fast after a transaction.
One of the most common reasons for a chargeback is that merchants don't process their credit card transactions right away. That, in credit card parlance, can lead to a chargeback under a "credit not issued" situation (credit card companies do have timetables on the processing of customer transactions). To avoid this situation, make sure to process credit card transactions as soon as possible.

2. Speed up your deliveries.
Another likely trigger for a chargeback is slow (or no) delivery of the purchased item. If a merchant processes a purchase, but is lax in delivering the item, the credit card company could ding the merchant with an "item not delivered" chargeback. To thwart the card carriers from doing that, deliver the item before you deposit the transaction.

3. Pay heed to "declined" transactions.
Never process a credit card transaction if the authorization was denied. You're almost guaranteed a chargeback. After all, there's no room for wishful thinking in the merchant business. Treat a declined authorization as a deal breaker.

4. Keep a manual card imprint machine handy.
Credit card imprint technology has come a long way, but breakdowns on magnetic-swipe reading machines do happen. Have a back-up manual credit card imprint machine to record the embossed account number and the card expiration date. That comes in handy in avoiding "no imprint" chargebacks on credit card purchases.

5.Strive for legibility.
Chargebacks are more likely when the card company can't decipher a sales receipt. It's up to the merchant to ensure that the sales receipt is clean, legible and mistake-free. Make sure the receipt is scanned properly and that any physical receipts are kept clean. Regularly change the point-of-sale printer cartridge and point-of-sale printer paper to keep the receipts easy to decipher.

The good news is that chargebacks are rare, especially those involving customer disputes. According to Heartland Payment Systems, a merchant-services provider, only .01% of all credit card charges are disputed. But chargebacks do happen, and they can happen to you. Take the steps listed above as an insurance policy against a chargeback happening to you, and keep your bank account intact, solvent and chargeback-free.

See related: How to decode your merchant payment processing statement; 10 things you must know about merchant account fees

Published: June 1, 2011

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