If you are a small business owner who accepts credit card payments for merchandise, chargebacks – reversals against sales credited to your merchant account – can be very costly. You lose the revenue from the transaction, and often the merchandise itself. In addition, you’re forced to pay a chargeback fee to the bank that issued the credit card used in the transaction.
The following tips will save you money by reducing unnecessary chargebacks:
Learn the ropes. Knowing the rules is essential to a successful chargeback prevention campaign. Make sure you and any employees involved in credit card processing are familiar with the rules and regulations of your processor. Visa, MasterCard, American Express, and Discover supply detailed information on both minimizing the chance of chargebacks and managing the process when they do occur.
Post your return/exchange policy. Customers having ready access to a clear return and exchange policy are less liable to challenge it. Prominently display your return policy – either in your store or on your Web site if you sell merchandise over the Internet – and make sure it is easy to understand. In addition, print the policy on your sales drafts and billing statements. These actions will discourage customers from contesting your policy later on.
Finesse the transaction process: in-store sales.
• Create proof that the credit card was present during the transaction (swipe the card or imprint it on the transaction receipt).
• Obtain a signature from the cardholder and compare it to the one on the back of the card.
• Request additional identification if the card is unsigned. Ask to see a photo ID that includes a signature, and require the cardholder to sign the card in your presence.
• Check the expiration date on the card.
Finesse the transaction process: phone sales.
• Indicate that the transaction was a phone sale on the billing statement – this will serve as proof of the customer’s call.
Finesse the transaction process: Internet-based sales.
• Provide your merchant bank with an 800 or other toll free number to include on credit card statements sent to customers, and make certain that the name of your Web site, rather than the name of your company, appears on the statements. This helps customers easily identify charges and keeps them from reporting an unfamiliar vendor as fraudulent. It also increases the chances that dissatisfied customers will contact you before they attempt a chargeback.
• Confirm large transactions by sending customers a fax-back or mail-back form requiring name, address, credit card number, expiration date, and signature.
Maintain complete and legible records. As the merchant, you are responsible for presenting a copy of the original sales draft or billing statement should a customer dispute a transaction listed on his or her credit card statement. In most cases, the customer will remember the transaction after seeing the sales draft or billing statement, immediately resolving the chargeback issue. If your original copy cannot be read, however, the transaction could be returned to you as a chargeback because the copy was illegible.
Actively seek retrieval requests. A customer who suspects an error or fraud requests the credit card company to nullify the charge. Tarek Kirschem, CEO and president of MerchantOnline, a turnkey e-commerce solution for small merchants, recommends asking your credit card service to send you each “retrieval request” as it comes in, so you can verify it with the customer if possible – before any money is returned to the customer and before you are assessed a chargeback fee.
Behavior to Watch Out For:
To control fraud, you need to recognize the signs. Be alert for transactions with several of these characteristics:
- First-time shopper. Criminals usually hit a merchant once and don’t return.
- Larger-than-normal orders. (This requires knowledge of what a “normal-sized” order is.) Because they may be using stolen cards or bogus account numbers that have a limited life span, crooks need to maximize the size of their fraudulent purchase.
- Orders consisting of several of the same item. As these items are intended for resale, having more of them increases the criminal’s profits.
- Orders made up of “big-ticket” items. These items have maximum resale value and therefore maximum profit potential.
- Orders shipped “rush” or “overnight”. Crooks want these items in their hands as soon as possible for the quickest possible resale and aren’t concerned about extra delivery charges.
- Orders from Internet addresses making use of free e-mail services. For these services, there’s no billing relationship and often no audit trail or verification that a legitimate cardholder has opened the account.
- Orders shipped to an international address. A significant number of fraudulent transactions are shipped to bogus cardholders outside of the U.S. And the Visa Address Verification Service can’t validate non-U.S. addresses.
- Transactions on similar account numbers. This is particularly popular among criminals who are using account numbers generated by a CreditMaster-type scheme.
- Orders shipped to a single address but made on multiple cards. This is characteristic of a scheme based on CreditMaster-generated account numbers or a batch of stolen cards.
- Multiple transactions on one card over a very short period of time. Sometimes this is an attempt to “run” a card until the account is closed.
- Remember, none of these by itself means you’re being scammed—but several of them together might. Check everything. Never ship a valuable order unless it checks out and you’ve received a valid authorization.
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