Chargebacks are an unfortunate fact of life for most merchants. They’re damaging and tedious, represent lost revenue, dent your reputation and can get you classified as a high risk merchant if you have too many. Many merchants don’t fully understand what a chargeback is, what they can do if they have one, and (most importantly) how to prevent them. This is bad enough the rest of the year, but when you add to the high-volume holiday season and you have a mixture that could be a big headache for you come January. Here’s why you need to start thinking about your holiday chargeback prevention now.

What is a Chargeback?

A chargeback is when customers dispute a charge to a credit card company and a bank then approves the charge, taking money from the merchant and refunding it to the customer.

There are a couple reasons that this could happen. The customer might want to return a product that didn’t fit their expectations, and figured that initiating a chargeback might be the fastest way to get their money back. They might also simply not recognize the charge on their credit card bill, and worry that someone has made a fraudulent purchase. Or, of course, there could be actual fraud on the card which is the reason this mechanism exists in the first place.

Chargebacks almost always mean trouble for merchants. The system was designed to protect consumers, so there are only a few methods for challenging a chargeback. The challenge also requires a lot of time and fees that merchants don’t always have. The process can take months, and the odds of winning most dispute cases aren’t in a merchant’s favor.

Holiday Chargebacks

Chargebacks after the holiday season are a special challenge. While the last month of the year typically means a boom in sales, chargeback dispute volumes are about 40 percent higher in January than November and December. Some of these chargebacks are legitimate, but fraud also increases during this window because merchant are inundated with orders between Thanksgiving the New Year, so they often relax some security measures. They also have less bandwidth in general to respond to chargeback disputes, making it easy for fraud to slip between the cracks. And as the rates of online shopping increase, the rates of chargeback disputes against ecommerce businesses will rise too.

The holidays are a crazy time of year for all merchants, and high chargeback rates will only add more stress (not to mention fees and lost time). That’s why it’s a good plan to put your effort into preventing them in the first place

How do you Prevent Chargebacks?

Chargebacks are tough to deal with once you’ve got them. The best way to protect yourself and your business and reduce chargebacks is to make an effort to prevent them. It’s essential to understand what steps you can take to prevent both legitimate and fraudulent credit card disputes from occurring in the first place. Here are a few tips to keep in mind before the holiday rush starts:

• Make it simple for the customer to contact you, and be clear about your shipping and return policies. Ensuring the customer knows how to return an item they don’t want and giving them a realistic delivery window will prevent chargebacks.  

• Have seamless customer support and maintain open lines of communication so customers can easily reach out with any issues or questions that arise. When customers can directly contact the merchants, disputes are minimized.

• Be clear and accurate in product descriptions so customers understand exactly what they are purchasing. Less surprises means less returns and disputes.  

• Always keep detailed transaction records, follow processing protocols, and track your receipts.

• Use clear billing descriptors so customers can easily identify their purchase on their monthly bank statements, reducing any confusion that may lead to a dispute.

• Prioritize your chargebacks, especially in the holiday season. Remember that the system was designed to protect consumers, so not all cases should be represented. If you know that a particular chargeback is going to be an uphill battle, it’s good business sense to focus on other chargebacks that are more promising.

• Train your staff well before the holiday season. Making sure your employees know which chargebacks to tackle first, and codify your business’s chargeback procedures. That way, when the holiday season rolls around, your staff will be prepared to handle it.

For online merchants, dealing with a chargeback dispute is a matter of “when” and not “if” — and the odds are high that “when” will include the holiday season. However, if you start preparing now and implementing a plan to prevent holiday chargebacks, it’ll pay off when the end of the year rolls around.