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6 Effective Strategies For Avoiding Chargebacks
What are chargebacks?
Before moving on to strategies meant to decrease the chargeback ratio or increase your LTV business rate, we must first understand what chargebacks are.
Chargebacks, by definition, refer to a dispute between you and your customer. A customer can directly contact the credit card issuer and dispute a charge to their account. You are given a chance to defend that charge. However, should you fail in your attempt to adequately protect it, you will need to restore that charge to the customer, plus cover additional fees, also known as chargeback fees.
In other words, you could consider your efforts to reduce chargebacks as a strategy to increase recurring revenue.
While chargebacks cannot be avoided entirely, you can lower their number and manage an acceptable chargeback rate.
Why do chargebacks happen?
- The refund never arrives: Refunds are a sensitive matter for customers. You should expect a chargeback if you have agreed to offer a customer a refund and it doesn’t go through.
- Authorization problem encountered: The customer is surprised to see that a charge went through, even though the payment authorization failed.
- Automatic renewals: Some customers might not be on the same page with you regarding automatic renewals.
- Double the charge: The customer has been charged twice for the product. Fraud: The customer does not recognize the charge.
- The order has not been fulfilled: After making the payment, the customer did not receive the product or cannot access it.
- Product wrongly advertised/ does not function: The customer pays for the product, receives it, and accesses it, but this does not function or works differently than expected.
- Canceled recurring transaction or installment billing dispute: The subscription has been terminated due to the client’s request, but payment was already processed before the request was made
6 Solutions to lower your chargeback rates
Make information easily accessible.
Keeping transaction and contact details clear is crucial when fighting chargebacks. It is one of the most effective tactics out there. Because it frequently happens for buyers to fail to recognize a specific charge, they hurry to issue a chargeback. And clearing up the misunderstanding will eventually lead to increased costs. To avoid the hurdles of fighting chargebacks, the safest thing to do is to provide the client with a clear transaction description.
Since there is a limited number of characters on a bank statement, make use of the fields destined for the transaction description as best as possible.
Complete product descriptions
One of the causes of chargebacks is the fact that after making a purchase, the client discovers that the product is not exactly what they had thought or needed. Unfortunately, you cannot convince a customer that they can use it after the purchase has been made, which is why you need to be proactive about this sort of thing and explain beforehand what your offer is. Offer detailed descriptions of your products. Go as far as you think it is necessary. Add screenshots, and demos to your product description, if possible, as well as any other pieces of information you think, would help the customer understand the product better.
It’s really all about anticipating problems. When you offer a small amount of information regarding a product, your customers might make blind purchases. And quite frankly, no one likes returns. They are messy and complicated, and most of the time they lead to other problems.
Flawless customer service
Strong customer relationships do represent the essence of successful businesses. To prevent customer dissatisfaction and stress, you must ensure that everything regarding your business’s customer service is flawless. Provide as much information regarding the order as possible in your communications with clients. Inform them of the order status, and provide precise transaction details. In case of returns or refunds, be specific about your policy and shopping process, leaving no room for interpretations. Keep clear records of purchases so you can easily offer them if customers seek details. Avoid promising what you cannot provide.
Communicate your contact details clearly, and don’t be afraid to interact with your customers no matter the situation. Your business needs to be perceived as trustworthy by your customers. Otherwise, they won’t think twice before filing for chargebacks.
Deal with inactive accounts properly
Many customers files for chargebacks for services they forgot they signed up for in the first place. Every SaaS business has its share of inactive users. While you might be tempted to think that recurring revenue is great no matter what, in this case, it’s not. Thoseinctive users might one day notice the charge on their card statement and mistakenly label it fraud. In other words, those transactions are chargebacks waiting to happen.
Instead of letting those inactive users slide, be proactive in your approach and take the initiative. Contact those customers, remind them of their paid subscriptions and with the risk of losing them, allow them to decide whether or not they wish to keep paying. Losing inactive subscribers is not as expensive as having to battle chargebacks. Not only will you have to cover all sorts of fees, but your brand’s reputation might be damaged.
Be PCI compliant
PCI compliance can reduce chargeback rates significantly. The requirements SaaS businesses need to fulfill ensure that credit card data is correctly handled. It is relevant to point out that PCI compliance is a complex process. And while it can ensure a significant tool in battling chargebacks, it is also hard work.
The simplest way to achieve this goal is to partner with a PCI-DSS-compliant eCommerce partner. A solution of this kind will adequately encrypt and transfer credit card data while following worldwide existing regulations.
Adequately follow chargeback dispute procedures
While you cannot stop chargebacks for good, you can reduce the chargeback ratio by correctly following the dispute process. Because chargebacks appear for various reasons, correctly disputing them means choosing the best strategy to win.You can only do that by understanding the dispute process.
Keeping a clear record of all purchase-related evidence will be crucial in winning the chargeback. Most merchants fail to provide the evidence requested by the issuing bank, losing money. Additionally, should you have the evidence ready and the bank decide against you, there are several other ways of attacking this decision. So all is not lost.