Chargeback Prevention Tips for Safeguarding High-Risk Businesses

Running a high-risk business is like walking a tightrope—one wrong step, and you're in trouble. One of the biggest threats to your financial stability is chargebacks. These pesky disputes can eat into your profits, tarnish your reputation, and even threaten the survival of your business. 

But don't worry, we've got your back! In this guide, we'll share actionable tips to help you prevent chargebacks, keep your money where it belongs, and ensure your business thrives.

What are chargebacks?

A chargeback is a reversal of funds initiated by a customer’s bank after the customer disputes a charge made on their debit or credit card.

Chargebacks are a way for consumers to get their money back if something goes wrong with a purchase—like not receiving an item, unexpected charges, or not getting a promised refund. 

Unlike a regular refund where the business gives the money back directly, chargebacks are handled by the bank, which pulls the funds from the merchant’s account and investigates the issue. So, if the bank decides the customer’s claim is valid, the money is returned. 

Chargebacks were introduced to protect cardholders and build trust in card payments, making people feel more confident using their cards with businesses.

Why do chargebacks happen?

Chargebacks can be a real hassle for businesses, causing more than just financial losses. When a customer initiates a chargeback, the funds are pulled from the merchant’s account, often without notice, while the bank investigates the claim, which can mess with your cash flow and cause a whole lot of other problems.

Common types of chargebacks 

Each chargeback usually comes from a specific issue or confusion on the customer's part. So, by understanding the most common types, you can better spot trends and take steps to reduce their occurrence.

Fraud

Fraudulent charges happen when a customer claims they didn’t authorize a payment. This could be due to stolen card details being used or simply a case of forgetfulness on the customer’s part. Sometimes, they might see a charge that doesn’t ring a bell and assume it’s fraudulent. This is called friendly fraud. The confusion often stems from multiple transactions or just the timing of the charge. 

Unrecognized charge

Unrecognized charges often come up when customers see a name on their bank statement that doesn’t match what they remember. This confusion can arise from unclear billing descriptors or using a parent company name instead of your business name. When a customer is unsure about a charge, it’s easy for them to jump to the conclusion that it’s an error.

Cancelled subscription charge

Have you ever canceled a subscription only to find a charge still showing up? This can happen if there’s confusion about the cancellation process or if a customer doesn’t get a confirmation email. Sometimes, they might not realize there’s a notice period before cancellation takes effect, for example.

Unreceived product

Nothing’s worse than waiting for a product to arrive, only to be left hanging. Customers may file chargebacks if they don’t receive their order on time, which can happen due to shipping delays, lost packages, or simply not having clear delivery expectations set. If someone paid for expedited shipping and still experiences delays, that’s a recipe for a chargeback.

Damaged goods

When customers receive a product that doesn’t match what they saw online or arrives damaged, it can lead to chargebacks. This often happens when product descriptions and photos aren’t detailed enough or when the quality isn’t what they expected. Poor packaging during shipping can also lead to damage to the product and a chargeback. 

Credit not processed

Customers might file chargebacks if they return a product or cancel an order but don’t see their refund come through. This often results from delays in processing returns or a lack of clear communication about refund timelines. If customers feel left in the dark, they might seek a chargeback as a way to resolve their frustration.

Why should you try to prevent chargeback?

Preventing chargebacks is super important for high-risk businesses, and here’s why they can be a real problem.

First, chargebacks can hit your bottom line hard. Each time a chargeback occurs, not only do you lose the sale, but you may also face fees from your payment processor. This can quickly add up, especially if chargebacks become a recurring issue.

Then there’s the relationship with your payment processor. Many have strict limits on how many chargebacks you can have, and going over that limit can lead to higher fees, extra scrutiny, or even losing the ability to accept card payments altogether. For a high-risk business, this could be particularly detrimental.

Chargebacks can also take a toll on your reputation. If customers see that there are frequent disputes, they might start to question the quality of your products or services, which can lead to lost sales and trust.

Plus, dealing with chargebacks can be a headache. It often involves a complicated process that takes time and resources away from actually growing your business. By focusing on preventing chargebacks, you can keep your cash flow healthy, strengthen ties with your payment processor, and build a better reputation with your customers.

Is there a way to prevent chargebacks?

Chargebacks can feel like a frustrating part of running a business, especially if you’re in a high-risk industry. But the good news is, they’re not totally unavoidable. You can reduce the number of chargebacks you face by getting ahead of the issues that typically lead to disputes.

Be transparent

Being upfront with your customers is a solid way to reduce chargebacks. Make sure they know exactly what they’re getting when they buy from you—whether it’s through clear product descriptions, honest shipping times, or available stock. When customers feel informed, they’re less likely to get frustrated and take their complaints straight to the bank.

Have clear refund policies

When customers can easily find and understand your refund policy, it can save you from a lot of headaches. You need to make it simple. No matter if they are returning an item or asking for their money back, a step-by-step guide can make quite the difference. 

Let’s be honest, no one wants to dig through a bunch of pages filled with legal jargon to find out how to get a refund. So, by streamlining the process and encouraging customers to deal with you directly, you’ll avoid unnecessary chargebacks that could’ve been solved with a quick refund.

Provide excellent customer service

Great customer service can help your company excel in many ways! Excellent customer service can also be your secret weapon against chargebacks. If customers can easily reach you with any issues or concerns, it can stop problems before they escalate. 

That’s why the first thing you should do is make your contact information easy to find, whether it's an email, phone number, or live chat. Then, you need to train your team to handle complaints with speed and care—people just want to feel heard and have their problems solved. 

The truth is if a customer can't get help from you, they're more likely to turn to their bank for a refund, and that’s when chargebacks start piling up.

Use clear billing descriptions

One of the easiest ways to prevent chargebacks is by making sure your billing descriptors are clear and recognizable. You’d be surprised how often customers don’t recognize a charge on their statement and dispute it!

That’s why it is crucial to include the name of your business or something they’ll immediately recognize, so there’s no confusion.  A simple tweak like this can help avoid those unnecessary disputes, and it keeps your customers in the loop about who they’re actually paying.

Secure your payments

As we mentioned, fraud can lead to chargeback, this includes both regular and friendly fraud. That’s why it’s crucial you make your payment process as secure as possible. There are plenty of tools available nowadays that can help protect your business.

You can easily use tools like 3D Secure to add an extra layer of protection and reduce the chances of someone making a fraudulent purchase. It also helps to have solid evidence if a customer tries to claim a transaction wasn’t authorized.

After all, secure payments give both you and your customers peace of mind, lowering the risk of disputes down the line.

Send order confirmations and shipping updates

Keep your customers in the know! Sending confirmation emails when an order is placed, along with shipping updates, is a simple way to prevent chargebacks before they happen. 

Let your customers track their packages and give them realistic timelines so they’re not left wondering where their order is. This simple communication step builds trust, and it’s way easier than dealing with a chargeback because someone didn’t get the info they needed about their purchase.

Monitor suspicious activity

Ever tried to get in touch with a company and struggled to find their contact info? Frustrating, right? Don’t let that be your business. Offer multiple ways for customers to contact you, whether it's email, phone, social media, live chat, or even AI chat. 

The easier you make it for them to reach out, the quicker you can address any concerns before they even think about filing a chargeback. Being available when your customer needs your help can build trust and make disputes less likely.

Offer multiple contact channels

Fraud can happen, but keeping a close watch on your transactions can help stop it in its tracks. If you notice anything unusual—like an order that’s way bigger than normal or coming from a location you’ve never shipped to—it’s worth pausing to check it out. Investigating suspicious activity before fulfilling an order can prevent fraud and, ultimately, save you from costly chargebacks.

Final words

Preventing chargebacks is crucial for safeguarding your high-risk business. By understanding the chargeback process and implementing these strategies, you can easily reduce the frequency and impact of chargebacks on your bottom line.

Remember, prevention is always better than cure. Taking proactive steps to minimize chargebacks not only protects your business but also enhances your reputation and fosters customer trust.

Ready to take control of your chargebacks? If you are in need of some personalized guidance, FirmEU is always here to help. So, let's work together to keep those chargebacks at bay!