Does your small business accept credit cards? If it does, you’re probably already aware of how chargebacks can affect your profitability.
When a cardholder successfully reverses a charge, your business will be liable for the transaction. This is true even if you’ve already delivered your products or rendered your services — the cardholder’s bank will simply withdraw the money from your account. With credit card fraud becoming more prevalent, chargebacks can significantly affect your bottom line.
To combat credit card fraud, many small businesses opt to use chargeback protection methods. Here’s how chargeback management works and why it can help your business.
Chargeback Management Software
These days, many businesses use chargeback management software as the first line of defense against credit card fraud. This software helps you recover or prevent chargebacks through detailed record-keeping. Most software solutions contain tools for managing predictive analytics, fielding chargeback alerts, and calculating fraud-related costs.
Chargeback management software tends to be very effective at providing an early response to incoming chargebacks. Depending on the tracking functionality, it may also provide actionable information about making operational improvements to reduce chargebacks in the future. That said, most software solutions are only as effective as the people using them.
Automatic responses to incoming chargebacks provided by chargeback management tools can be a great help in disputing invalid chargebacks. This process is known as chargeback representment, and it requires you to submit a chargeback rebuttal letter that proves the transaction is valid.
What should your rebuttal letter include? That depends on the nature of the specific chargeback, but as a general rule, the letter should contain the following:
• Evidence that the cardholder approved the transaction
• Tracking numbers that prove the product was delivered
• Description of your product or service
• Your refund policy
Are Chargeback Management Tools Worth It?
As mentioned, the main benefit of chargeback management is protecting yourself from credit card fraud. When a customer requests a chargeback, there’s a chance you’ll lose both the money from the transaction and the product you sold. For a business operating on small margins or dealing with high-value items, this can be a major setback.
Other than protecting your revenue stream, chargeback management may act as a safeguard for your merchant account. If your chargeback ratio is over 2%, your merchant account will be considered for closure. On top of that, if you often process fraudulent credit cards, your business reputation is likely to take a hit.
These risks are particularly prevalent in high-risk industries such as bail bond companies and gambling companies. If you’re operating in a high-risk industry or have reasons to worry about your chargeback ratio, chargeback management will likely be worth it.