Top reasons payment disputes occur and how to prevent them

man receiving chargeback

5 min read

Chargebacks are an inevitable part of running a business, but the chance of them occurring is very small. You might be lucky enough to never encounter them, or you might be hit with some all at once. The good news is, there are steps you can take today to reduce your risk of chargebacks.

What exactly are chargebacks?

A chargeback is a reversal of payment after a customer queries a payment made to your business. The customer goes directly to their bank or financial institution and requests their money back. If the bank determines that the payment shouldn’t have been taken by your business, a payment reversal occurs and the customer gets their money back.

Customers can query a payment from their bank account or credit card for any reason, so understanding some of the most common reasons can help you to put the right processes in place to minimise the chances of your customers disputing their transactions from you.

Most common chargebacks reasons

Here are the top reasons chargebacks occur, and what you can do to prevent them.

Unauthorised use of card

As a business owner, it’s your responsibility to prove the identity of a card user, no matter what the method of payment is.

If the rightful owner of the card finds an unauthorised payment on their statement and files a dispute with their bank and a payment reversal (chargeback) is the likely outcome.

When you’re capturing card payment details, make sure you verify the name on the card matches your customer’s name. If you choose to defend a dispute where the reason is unauthorised use of a card, you will need to prove the cardholder took part in the transaction.

Unfortunately the rate of payment disputes is higher with card-not-present transactions such as direct debit and online payments, so make sure you double check all the details before authorising any payments on your end.

The transaction was processed twice

Mistakes happen! If you accidentally processed a customer’s payment twice, let your payment provider know so they can authorise the money back to the customer.

It’s always good to try and remedy payment matters directly with customers, rather than going through the formal dispute process, which can be tedious and incur charges for your business. Although it’s not always possible, try and encourage open communication with your customers about payment issues so you can resolve them directly.

The transaction value was incorrect

Much like the above example, this kind of dispute can be resolved with the customer directly, saving you time and money. Asking your customers to come to you with any issues can go a long way in minimising formal disputes and chargebacks.

If you’re slow on responding to emails or messages from your customers, they might feel that lodging a dispute is the quickest way for them to get their money back. Having a reputation as an approachable business will encourage your customers to come to you when they’re having problems.

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Cancelling a recurring service

If a customer no longer wishes to continue with a recurring payment, but is still contractually obligated, they might decide to file a dispute to cancel their payments rather than come to you.

Contractual obligations and membership terms are between the business and their customers. Unfortunately for business owners, banks are not required to uphold your terms and can take their customers’ statement as fact if they claim a recurring service was cancelled. This makes it difficult to prove that the cardholder did not in fact cancel their payments.

This is where being an ‘approachable’ business comes in handy again. Try to work out a new arrangement with dissatisfied customers rather than ignoring them, or falling back on the contract conditions. If you’re seen to be meeting them halfway, they’ll be less likely to file a dispute for their money back.

The customer is unhappy with the item or service

It goes without saying that customers who are happy with the goods or services you provide will be less likely to file a dispute for a return of their payment.

Other than delivering quality goods and services, the best preventative measure to take in this scenario is to make sure you’re very clear on what will be included or provided to the customer. The more upfront information you provide, the clearer their expectations will be of what they will receive.

Friendly fraud

This cause of chargebacks is considered to be the worst kind. Friendly fraud is a deliberate decision on a customer’s part to receive goods or services but not pay for them. They therefore claim that they didn’t receive the goods or services they paid for.

You can minimise your chance of receiving these sorts of chargebacks by keeping records of tracking numbers when you ship goods and by making sure you select the sign for goods option with your shipping company. The more evidence you have that the customer has received their purchase the better, but unfortunately this doesn’t always guarantee that a chargeback won’t occur. Ultimately the decision lies with the customer’s bank on whether a reversal of payment is issued.

While no amount of customer service will deter a person set on scamming your business, you can prevent them from hurting your business twice. Blacklist customers who have filed a dispute with you for no reason, as they’re likely to try to commit fraud again if they know they can get away with it.

Our final tip

Make sure your customers know what name will appear alongside the transaction on their bank statements or in their account.

If your customers don’t recognise the payment coming out of their account and can’t find out where their money is going, they’re more likely to dispute the payment.

If you partner with a payment provider like Ezidebit you can choose what name will appear in their transactions, making the payment easier to associate with your business.

Got a question about disputes and chargebacks? Head to our Disputes and Chargebacks FAQ page here.

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