Chargebacks 101: What You Need To Know As A Business Owner

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As business owner, it can be difficult to navigate the constant changes that occur in the electronic payment industry. One major topic business owners need to be well-versed in is that of chargebacks and how they affect your bottom line. Merchant processing systems have become a vital part of our society, but new developments in technology and regulations from financial institutions can be confusing to understand when trying to run your business.

This article will provide basic information every business owner who accepts electronic payments needs to be familiar with and offer solutions to help day-to-day operations run smoothly.

What is a chargeback?

To begin, it’s important to know what a chargeback is. Simply stated, a chargeback is the term used when a bank, on the customer’s behalf, initiates the process of reversing the outbound transfer of funds from a customer’s bank account, credit-card, or line of credit. Historically, chargebacks were issued for cardholder security, so that if their card was lost or stolen and used for unauthorized transactions they would be protected.

Is it a refund?

Not exactly. Because a chargeback is initiated from the bank’s side, funds are reversed from the merchants account and money is replaced in the cardholder’s account. As a function of cardholder security, the process favors the interests of the consumer, and many times the process is completed before the merchant is even aware of a dispute. The main difference between a refund and chargeback is that the customer is not required to return the item that was purchased.

What happens during the process of a chargeback?

Chargebacks can create a serious disruption in your day-to-day business operations. Because they are not as simple as a customer coming in to return a product, which will either be restocked, or accounted for in your books, it’s helpful to understand the process of a chargeback.

  1. First, the customer will file a dispute with their card issuer.
  2. The issuer will then review the situation and begin to investigate the case.
  3. The merchant has a change to review the chargeback and take action.
  4. The issuer will then dispute the chargeback if appropriate.
  5. The issuer reviews the evidence and makes a final decision.

How long do merchants have to respond to a dispute?

Generally speaking, most chargeback time limits for merchants need to occur within 30-days. Depending on the card-issuer these time frames may vary, so it’s best to respond as soon as possible.

Fighting chargebacks can be a serious headache for any business owner. While some merchants may be skilled in the process of identifying, evaluating and handling chargebacks, most will want to consider using a merchant processing service that can help them navigate through the process. Selecting a merchant service provider who is experienced with these types of issues can make or break your business, so it’s best to choose a company that is an expert on the topic of chargebacks.

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