Conflict is a part of life and in the credit card processing world, we sure have our fair share of conflict! A 'Credit Card Dispute' happens when a customer is not happy with their purchase (for any reason) and they choose to contact their card issuing bank to reverse the credit card transaction. These disputes have many impacts on merchants and the credit card processing industry overall.
Merchant Account Approvals: Because consumers have up to 6 months (past any implied warranties) to dispute a transaction, business owners have to be credit approved in order to gain a merchant account. A business owner must be able to prove their ability to handle disputes from their customers so account balances and credit history play a part in whether a business owner can get approved to accept credit cards using a traditional merchant account.
Merchant Account Parameters: During the approval process, business owners are approved for a certain ticket size, monthly volume and the way they can accept credit cards. The parameters are set up based on the risk factors related to the particular business type as well as the credit history and financial standing of the business owner. When merchants elect to process transactions outside of their approved parameters, they run the risk of having their funds held, having to process refunds or having their account terminated.
Chargebacks (Disputes): When a customer decides to dispute a charge on their credit card statement, it is called a chargeback. Processing companies assess a fee for chargebacks (typically between $15 and $30 each). Processors also remove the disputed funds from the business's account right away. Businesses are required to provide proof that they had permission to charge the card, that the products or service was delivered as agreed and that any challenges were resolved. If a business owner cannot provide such proof, the customer wins the chargeback and funds are not returned to the merchant. If a business owner provides the necessary proof and the card-issuing bank agrees with them, the funds are returned but the chargeback fees are not refunded.
Just like in any relationship, disputes can be prevented with an open and honest line of communication.
The following 3 tips can help you reduce and possibly eliminate disputes:
- Clearly Post Refund/Return Policies: A clearly defined set of expectations can eliminate the need for a dispute. Be sure to clearly list your company's refund & return policies so customers know exactly what they must do if they have a challenge. Most customers are fair and would prefer to work with you, rather than initiating a dispute with their credit card issuer.
- Address Conflicts & Concerns Right Away: When you have a disgruntled customer, taking immediate action can resolve the challenge. If you ignore, wait too long or worse- ignore your customer's problem, you leave them no choice but to start the dispute process. On the other side of the equation, customers simply must let business owners know if they have a challenge. Merchants cannot fix something if they do not know there is a problem. Good relationships require that both parties communicate their grievances and do what they can to iron things out as quickly as possible.
- Respond to Chargebacks Immediately: Once you know there is a conflict and it has been escalated to a chargeback, you only have a short window of time in which to respond. Not responding in a timely manner will result in your loss of the chargeback, without being able to present your side of the dispute. When you do respond, you will be asked to provide a copy of the receipt and any supporting documentation (which is why it is so important to keep accurate records). After responding, business owners must wait for the determination of the card-issuing bank.
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It is important for business owners to know that they can do everything right and still LOSE a chargeback. Remember that the Visa/MasterCard rules and regulations are not the same as in a court of law. If you feel that your dispute was not resolved properly- you can either go through their arbitration process (the loser pays the $400 cost) or take the matter to small claims court.
Clear, honest communication minimizes conflict. As consumers, we need to be aware of the refund and return policies of the places we choose to do business with. As business owners, we need to be diligent about the way we are accepting credit cards from our customers (checking ID, looking for red flags, etc.) and we need to resolve any issues immediately.
Credit card disputes are a part of the business world and we all have a part to play in reducing them.
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