Preventing Chargebacks - Best Practices

Owned by Miles Graves
Last updated: May 22, 2023
3 min read

A Chargeback is a credit or debit card charge that is forcibly reversed by an issuing bank.

Chargebacks happen after a cardholder claims a transaction was the result of fraud or abuse. Even the most reputable online businesses will struggle with chargebacks.

  • For cardholders, chargebacks act as a shield against criminals or dishonest business practices.

  • For merchants, chargebacks can pose a serious threat to revenue and business sustainability.

See each topic below for best practices to prevent chargebacks or download our one-pager:

Authorization Procedures

When attempting to process a transaction, a “decline” code during the authorization stage indicates that the card issuer does not approve the transaction.

Authorizations should not be reattempted if a ‘decline code’ is received.

Do not attempt to reduce the transaction amount or repeat the authorization request. If a “decline” is received, return the card to the customer and ask for another form of payment.

Card Not Present (CNP) Transactions

CNP transactions, such as Mail Order, Telephone Order and Internet transactions, are more prone to chargebacks due to lack of in-person verification options.

Merchants can add controls to reduce the risk of chargebacks for fraudulent or unauthorized transactions:

  • Maintain a negative Database.

  • Limit the number of transactions by a single cardholder.

  • Use an Address Verification Service (AVS).

  • Employ strategies that will allow you to know your customers.

  • Publish a customer service phone number

  • Use CVV2/CVC2 security features.

Credit/Refunds

To prevent Credit Not Processed chargebacks, merchants should quickly process refunds to their customers.

Merchants can take additional steps to reduce the likelihood of “Credit Not Processed” chargebacks:

  • Make customers aware of a cancellation or refund policy in writing.

  • Provide “No Refund” policy on transaction receipt if store credit is only allowed.

  • Always provide refunds to the same card used in the original sale.

  • Never refund a card purchase with cash or check.

Duplicate Transactions

To avoid duplicate transactions that result in Duplicate Processing chargebacks, merchants should carefully review each transaction and settlement batch to try and spot duplicates.

Merchandise or Service Not Received by Cardholder

If a cardholder does not receive merchandise or services, a Non-receipt of Merchandise chargeback may occur. Goods and services must be delivered before charging the customer.

Cardholder Disputes Quality of Merchandise/Service

Shipped goods should be properly packed. The goods should be suitable for the purpose for which they were sold.