Chargebacks – What Are They and Why Do They Happen?
Most of the time, when we shop and buy, it is immediate satisfaction…you choose your product and purchase it, walk away and it’s yours! Sometimes, a consumer may indulge in similar practice with a service; let’s say a haircut or salon service. In these instances, there is no time between when you receive a product or service and when you pay for it. This is the most comfortable ideal business situation for our Merchant Services Providers, it entails very little risk and the likelihood of the consumer returning the service or product is very small.
At the same time there are a million of different businesses who operate in a variety of ways. Sometimes, you may partake in the purchase of a product or service which you will not receive right away. The time between when you pay for something and when you receive it is referred to as “fulfillment” time. It is during this time where the red flag’s wave and the possibility of the evil dreaded Chargeback becomes a reality….
A Chargeback will only happen to a merchant as a result of a grievance from a customer directly to their credit card processor. The consumer disputes the fee which leads to an investigation by the credit card company in an attempt for someone to cover the lost fees. Let’s use an example:
Furniture Business… I go out and purchase a chair on sale. It will take 2 weeks for me to receive that chair but I pay for it in full up front. After two weeks, I receive the chair and it is two shades lighter than the one I picked out in the showroom. I don’t want the chair and I don’t want to pay for it anymore. Now… keep in mind here that a merchant will receive my payment for that chair within 48 hours of the transaction which in this example was two weeks ago! The merchant is covered for their inventory, but now that I got my Visa bill and I was not satisfied with the product I later received, I refuse to issue that payment. I will call Visa and explain this to them. Visa in turn, will contact the merchant to get the merchant to cover the loss. This is called a “chargeback”.
Another example, I want my art to be framed. I go to the framers, they charge me a deposit, and the rest is due upon pick up. I didn’t sign anything nor was I subjected to any terms with regards to that deposit. I go back to pick up my framed art work 7 days later and it looks awful. I demand my money back, the merchant claims they do not refund their deposits. I was never told this…so again, unsatisfied consumer calls to dispute fee’s with credit card processor directly, again it is now up to the merchant and credit card company to determine where the fault lies and who will cover the loss.
Basically, word of caution to avoid chargeback’s would be to obtain a signed receipt with every credit card purchase. In the instance where this is not possible (online business ect) then the merchant should format some type of documentation that can free them of ever having this happen.
It is important for a business to have their terms and services understood by their consumers, post signs, issue additional paperwork essentially anything that would help defend that purchase, should the credit card co’s come a knocking with a customer grievance.
Chargebacks are a source of grief to the processors and often times before even approving a merchant to accept credit cards, things like fulfillment time and refund policies are strongly reviewed ahead of time, to help assess the potential risk the business may present. Chargebacks are not a good thing, too many of them will give your provider good and valid reason to terminate your processing.
