Five Simple Steps to Prevent Merchant Account Charge Backs


Authored by Ted Goodman in Ecommerce
Published on 01-11-2009

Your business increased and now you have a brand new merchants account. It feels good to get away from a third party processor and start building your own brand. People will take your business more seriously now. Just having a merchants account and gateway that’s doing your fraud scrubbing is not going to be good enough to keep your charge backs below the required amount to stay in business with your merchants account. The dirty little secret is your bank does not care if you get charge backs and they hope you do. Credit card companies and banks make millions of dollars in pure profit every year by charging merchants a fee each time they get a charge back. It’s as simple as pressing a button and the funds are reversed back to the card holders account electronically and then charging you anywhere from 28.00 to 40.00 dollars each time they get to do it. They tell you how charge backs are bad and they don’t like them. However, the truth is they love them and don’t do a lot to prevent them.

Banks that issue a merchant account uses a very basic fraud scrubbing program. They check the address, card holders name and the security code on the back of the credit card against the information put in to an online web form your customer fills out when you are collecting his credit card information to bill him for your product he is buying. As long as they match, the transaction will be processed. It can take several months for a charge back to be processed, and your bank to notify you that there has been one. We are not going to get in to the deliberate fraud here and just focus on the most common reasons for charge backs.

So how can you even start to combat this problem? It’s not too hard actually.

1. Make sure you have your company name on the check out form that your customer is filling out. Something like your credit card will be billed by EduBook.com, or whatever your companies billing name may be. Make sure to put it somewhere your customer is going to see it and change the color to stand out against the rest of the page, preferably in bold text. Don’t put it on the very bottom of the page. I would put it on the top of the page so it’s the first thing they see and read. Make sure you have a business phone number that shows up in the descriptor that’s going to appear on the credit card statement.

2. Always make sure you send your customer an email copy of the transaction. You can find many programs online to do this, very simple and easy but if you don’t understand how to install them, hire someone to do it as it won’t cost much and will save you lots of money in the long run.

3. Make sure you have a contact email address and phone number on your website so anyone can contact you about a billing question. I have had many customers call me and ask about why my companies name appears on their credit card statement. I know it’s hard to believe a customer could buy a product and then forget about it a month later but trust me it does happen. I receive average 30 calls a year from a customer inquiring about a charge on their credit card, so if you do the math, 30 potential charge backs x 30 dollars per charge back fee is close to 1,000 dollars a year. Even if you are below the charge back allowance, you have just blown close to 1,000 dollars in fees from your yearly profits.

4. Customer service should be your top priority. Be quick to answer any questions your customers have especially about billing. Be sure to give your customers all the information they request. This will help them remember more about your product or services if they decide to purchase from you, resulting in remembering what the charge was on their credit card statement. This is the number one reason customers charge back; they don’t recognize the charge and assume it was a mistake. One quick call to their bank or credit card company and it’s instantly reversed leaving the merchant with the charge back and other fees. If you go over the allowed charge back rate, your bank will close your merchants account and you will be out of business. Once this happens you are put on a list and it will be very difficult to get a new merchants account with another bank. Even if you do, you will pay a much higher transaction fee and merchant account set up fee.

5. Always deliver your products or services in a timely manor. If a customer orders a product that requires you to mail it to them, don’t put it off. Get the product shipped as soon as possible and send them an email letting them know when they can expect to receive the shipment. Same applies for a service. Get the task completed in a timely manor.

Although there is no way to completely prevent charge backs from occurring, using these five simple steps could drastically reduce charge backs, keeping them to a minimum. Communication with the customer will go a long way in preventing charge backs.


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