Chargebacks

Customers Wanting Their Money Back

Almost everyone has an idea how a credit card sale works. But even some experienced merchants don’t know the other side of the system: Chargebacks. Understanding chargebacks can save you a lot of money, and help to salvage customer relationships.

If a cardholder believes a charge isn’t legitimate, or her expectations weren’t met by the good or service provided, she could come to you for a refund. But she has another, more troublesome, option: Chargebacks.

Here’s how chargebacks work: Regardless of merit, the issuing bank is obligated to investigate complaints from cardholders, including:

  • You never delivered the goods and services you promised her.
  • She never ordered the goods that showed up on her credit card bill.
  • She received the goods and services, but they didn’t meet her expectations, so she wants a refund.

In these circumstances, the issuing bank initiates a Retrieval Request and/or a Chargeback to resolve the matter.

Step One in Credit Card Disputes: Retrieval Requests

Traditionally, the dispute process begins with a Retrieval Request that asks for documentation.

  1. The issuing bank sends a Retrieval Request (often called simply "retrieval") to the processing company. (Sometimes, they start with a chargeback and skip the retrieval request altogether.)
  2. The processing company sends the retrieval to you. The retrieval asks for proof that you delivered the disputed goods or services to the cardholder.
  3. When you provide proof that you delivered the goods or services to the cardholder, the processing company forwards it to the issuing bank that informs the cardholder. The proof is usually a document (delivery receipt, credit card receipt and/or your store receipt) signed by the cardholder TIP: Reply PROMPTLY to these requests. Late responses almost always result in chargebacks.
  4. At this point, the complaint is usually dropped (but not always)

Chargebacks: When You Can’t Prove the Customer Wrong

If you don’t have documents for the retrieval, or if you don’t deliver a copy of the documents to your processor in time, the cardholder is deemed to be right. When this happens several things occur:

  1. The issuing bank submits a chargeback to your processor through the Visa/MasterCard network.
  2. Visa/MasterCard debits the original transaction amount from your bank account. (Or, it is deducted from your most recent deposit transactions).
  3. Your sponsoring bank records the chargeback on your account record.

Besides the obvious financial loss to you, chargebacks are also bad because of that final step.

Everyone in the credit card system knows that eventually a few transactions will result in chargebacks. They’re a cost of doing business.

But, if you cause too many chargebacks, the credit card system will start to doubt you and your standing as a credit card merchant. When chargebacks become too prevalent, your merchant account may be terminated by your sponsoring bank. Then you may find it impossible to find another sponsoring bank. In other words, no more credit card acceptance. Ouch!

Chargebacks and Timing

In most cases, chargebacks must be initiated within 120 days of the original transaction.

However if a merchant is alleged to have violated Visa or MasterCard rules, a "compliance" case can be disputed up to 180 days after the rules violation.