Understanding chargebacks as a business

If you run a business, you might come across something called a chargeback. That’s why we put together this article to help you better understand what they are, why they happen, and how you can prevent them from impacting your bottom line.

What's a chargeback?

Chargebacks happen when a customer claims a transaction with a merchant (you) is fraudulent, or sometimes when their refund request is rejected. The cardholder may say they were overcharged, or that they never received the goods they paid for.

After a chargeback is raised, you can either challenge the dispute by providing evidence to show the transaction was genuine, or accept the chargeback and refund the customer.

What's the difference between a chargeback and a refund?

The main differences between chargebacks and refunds are the parties involved, and the time it takes to resolve them.

• Refunds involve the cardholder requesting reimbursement directly with the merchant — the process is generally simpler and takes less time to complete
• Chargebacks are raised by cardholders through their bank or card issuer, making the process of resolving them more complex and time-consuming

Why are chargebacks raised?

Here are 3 common reasons customers dispute card transactions:

1. Fraud: an unauthorised person used the card to make the disputed charge
2. Product or delivery issues: the item wasn’t received, it was damaged, or didn’t match its description
3. Merchant errors: a duplicate or incorrect amount was charged

What does the dispute process involve?

If you’re notified that a cardholder raised a chargeback, you can either accept the request and issue a refund, or dispute it by providing proof to the cardholder’s bank that the transaction was genuine.

If you or the customer is unhappy with the first outcome, then the cardholder and merchant banks try to settle the claim one last time before the card issuer gets involved. If both banks are unable to agree on an outcome, the final decision is made by the card company.

6 ways to prevent chargebacks

1. Make it easy for customers to contact you
2. Save documents and records to prove genuine transactions
3. Clearly communicate policies and product details
4. Ensure timely delivery, and track shipments
5. Process refunds promptly when accepting valid claims
6. Monitor unusual transactions and where they came from

What evidence can I provide when disputing a chargeback?

The documents you need to provide depend on the type of claim — the more evidence you give, the better.

For fraud disputes:

• A detailed invoice or receipt for the purchase
• Evidence of a previous payment from the same cardholder, or proof that the transaction is part of an instalment plan
• The customer's email address to show proof of digital download
• A copy of your communications with the customer
• Proof that the customer made the purchase from a registered device and IP address
• Evidence you already issued a refund

For non-fraudulent disputes:

• Confirmation of signed proof of delivery and a tracking number
• A signed contract, T&Cs, and evidence as proof you completed any services
• A copy of your communications with the customer
• Evidence you already issued a refund
• Proof the dispute was already resolved, including your merchant T&Cs, return policies, and documentation outlining the payment cancellation

How to effectively manage chargebacks

We know chargebacks can be a stressful part of running a business, that’s why we’re here to help you manage them more effectively. A better understanding of why they happen, how you can prevent them, and the best type of evidence to provide can all help minimise their impact. Preparing ahead of time with clear customer communication and thorough records helps avoid future disputes and improve your reputation as a trusted business.