How to Keep your Business Free of Chargebacks

It’s a heart stopping electric shock that radiates from the heart and permeates throughout the entire body down to your toes –all due to receiving your first customer chargeback.

Chargebacks happen no matter what industry you are in – whether selling sneakers from your home built website or a multi-million dollar VoIP telecom business selling business sip phone services.    It happens to everyone.

What is a Chargeback?

First, let’s discuss what a chargeback is.  A chargeback is when a customer who has purchased your service or product using a credit card, contacts the credit card company and tell them your company did not provide that particular service or product as expected or claimed.  They then request that the purchase amount be returned back to them.

Chargebacks are different from returns because a return is done by the vendor directly.   A chargeback however, is performed between the banks.   The credit card company will contact your bank which deposited the original amount and will automatically deduct that amount from your business account without any warning.

As the business owner, you will receive a notice in the mail stating that a chargeback occurred due to a complaint by such and such customer.    You will have a narrow window of time to rebut the chargeback and the odds are not in your favor unless you have explicit solid proof that your business did indeed provide that service or product as promised.

Straightening out a chargeback issue can take months and months of valuable time and resources.  Time spent trying to rectify the original issue with the customer, time spent over the phone talking to the banks and credit card companies, and time wasted on the original sale if in fact you do not get the chargeback reversed.  In business, time is money and is not something to squander.

Therefore, the best way to fight chargebacks is to prevent them from happening in the first place.  Here are a few general rules of thumb which will help you avoid going through such a terrible ordeal which can hurt your revenue and cause damage to your reputation.

Build a Relationship with your Customers Up Front

Customers are less likely to take negative actions against your business when they like you personally.   Let’s face it, it is much easier to rant and rail or complain about a service when you don’t associate a person’s face, name or voice to your issue.

However, as a business, when you gain your customer, it is crucial in the early stages to build a strong relationship with them.   For example, if you sell a service – albeit phone service or fax service or even a dry cleaning service, having a sales rep pick up the phone after the sale to follow up making certain the customer is happy is a great start to building a positive relationship.

By creating an opportunity to discover any questions or problematic issues the customer may be experiencing or feeling, you are able to put out any damaging fires that could have turned devastating.

In addition, when a customer sees your business taking a pro-active approach regarding customer service, you have shown that A) you are not a scam and B) you are sincere in delivering and following through on your promise of delivery.

As simplistic as that sounds, many consumers are very wary of purchasing anything from a company they have not dealt with before.  They are taking a risk and distrust runs high – it is up to you to calm their fears.

Get Everything in Writing

With products which are shipped, you can easily prove delivery by requesting UPS or Federal Express to require a signature.   However, with products which are non-tangible such as a service or a downloadable piece of software – it is harder to prove delivery.  Therefore it is important to implement sales policies which require a signature or contract.

For example, if you are providing a work for hire service, such as programming, it is wise to implement a “sign off” worksheet which requires the signature of the client indicating they approve and acknowledge work was performed.

Signatures are not always easy to obtain but using fax to email services can make it much easier.  Other services, such as Echo-Sign provide e-signature software which allows the client to sign and approve documents and contracts online.   Echo-Sign handles these digital signatures in a way that is compliant with law and will save copies of each document signed.

When experiencing a chargeback, a credit card company will ask for proof that your product was delivered.   Obtaining a legitimate signature is often the only proof you will need, depending of course on the severity of the case.

Obtaining a signature in this manner will also make it less likely a customer will request a chargeback because they know that they submitted their signature acknowledging the work.

Say What You Do and Do What You Say

This is a good principle in all aspects of our lives, but especially true with business because sometimes there are legitimate reasons for why a product was not delivered.

For example, a shipment may have gotten lost in the mail and needs to be resent.  Other times as in the case of programming, clients request changes to the project scope and this prolongs the work in progress.   This is why it is critical for programmers to require signatures for any work order changes which specifically state such changes can and will delay delivery.  Also include a new “estimated” delivery date for the client to acknowledge in the change order form or letter.

Other examples may be due to technical issues, such as phone or internet companies that say they will install service by a certain date, but are delayed due to connectivity issues or an unforeseen backlog.

Regardless of the type of product, it is important to always come through on your promise, and to notify your customers of any changes or disruptions you might be experiencing.  Consumers can be very patient as long as you are upfront, honest, and treat them the way you would want to be treated.

Dealing with chargebacks is not a pleasant experience, and every effort should be made to avoid them at all costs.   Deal with them before they happen by genuinely building relationships with your clients at the beginning of the business relationship.

Cover yourself legally by taking the proper professional precautions by securing organized and clearly defined documentation of all transactions and correspondence along with signatures.  And lastly, have integrity and follow through on your promises.  Remember, you are always better off under promising and over delivering, rather than over promising and under delivering!

About the Author: Liz Krause has been involved in the business world for over 15 years, from telecom with a sip voip provider to running her own cooking website and working alongside her husband running a small home based business for over 10 years. She enjoys writing and enjoys sharing her experiences and hopes her insight will help others avoid some of the hardships she has experienced from her own time in business.

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