Biggest Mistakes Retailers Make That Result in Chargebacks

Simple retail errors, such as unclear return policies, neglecting customer complaints, and inadequate shipping policies, often result in chargebacks that could have been prevented.

Research has shown that 20-40% of all chargebacks issued are due to retail missteps. Another study showed that retail chargeback costs reach $40 billion per year. Yikes!

So, to avoid these unnecessary chargebacks, we have put together the five biggest mistakes retailers make that result in chargebacks and how these chargebacks can be avoided totally.

What are Retail Chargebacks?

Retail chargebacks occur when there is a disputed credit card transaction from a consumer, and alternately, the merchant holder is debited of the money reversal. These disputes could range from an unauthorized third party using the card, clerical errors in transaction processing, or a dispute over the delivery or quality of the product.

This approach is a protective mechanism for the consumer; however, these mistakes cost the retailers who face the challenges of a potential loss in revenue from the sale in addition to the fees associated with chargebacks.

Chargebacks can occur from these three categories:

• True Fraud: This occurs when a stolen credit card is used for unauthorized purchases, typically leading to the customer reporting the incident to their bank.
• Retail Error: This occurs when there is an error in transaction processing due to a mistake on the retailer's part or a breach of the purchase agreement.
• Friendly Fraud: This kind of chargeback happens when a customer unintentionally disputes a valid charge due to confusion, forgetfulness, or misunderstanding rather than deliberate deception.

Seven Common Chargeback Mistakes

Mistake #1: Poor Customer Service 

Poor customer service is one of the common mistakes that increases the likelihood of chargebacks. It begins with failing to attend to customers’ complaints, making them feel undervalued or not getting clear responses to queries; this makes them resort to filing chargebacks to resolve their dissatisfaction. This negative experience not only impacts immediate transactions but also tarnishes any sort of long-term relationship between customers and retailers.

To avoid this pitfall, here are some tips that aid in improving customer service to avoid chargebacks:

• Showing positive interactions with customers significantly boosts their loyalty. By being friendly and empathetic towards them, they tend to forgive minor issues, and the likelihood of a chargeback is minimal.
• Introducing self-service tools like live chats, mobile apps, or online customer service portals helps provide fast customer solutions and responses, reducing the chances of chargebacks.
• Showing transparency and being honest during interactions with customers can build trust. This means admitting to errors and notifying customers about them proactively. It prevents any misunderstanding and reduces any sort of chargebacks.
• Addressing customers’ complaints promptly, especially those shared online (negative reviews), can aid in preventing chargebacks and retaining customers.
• In the case of a negative review, one way to balance it is with a positive review. Actively seek positive feedback from satisfied customers. This approach helps in enhancing the company’s reputation.
  

Mistake #2: Inadequate Transaction Documentation

Maintaining a detailed transaction record is one of the best defenses against possible chargebacks. Once the transaction record is up-to-date and detailed, whenever a dispute surfaces from a customer, all things work in favor of the retailer. Some important factors of detailed transaction records include:

• Disputes Evidence: A complete transaction record containing order confirmations, shipping information, and customer communication is vital in chargeback disputes. It aids in proving that the transaction was legitimate and that the product was successfully delivered as agreed.
• Detecting Chargeback Triggers: These detailed logs are not just records but a treasure trove of insights for unearthing operational glitches or recurring patterns that might unwittingly be rolling out the red carpet for chargebacks. For example, certain indicators of frequent chargebacks on some products could result from product description or quality issues.
• Improving Customer Relations: One other perk of an accurate transaction record is the fact that it aids in recognizing and resolving customer inquiries efficiently, thereby improving customer relations and reducing any possibility of chargebacks. 

For a better record-keeping, here are the best practices that can be done:

• Records such as order history, customer details, shipping details, and correspondence should be comprehensively maintained.
• The use of reliable systems should be integrated. This includes automated tools or chargeback management software.
• Analyze chargeback data regularly.
• Clear billing descriptors should be used to prevent customer confusion and unintentional chargebacks.
• React with alacrity to any dispute scenarios with detailed transaction records, thereby paving the way for swift resolution and deterring the possibility of such disagreements morphing into full-blown chargebacks.

Mistake #3: Ambiguous Return and Refund Policies

Using unclear return and refund policies can only attract unexpected chargebacks. When there’s transparency in the return policy, it improves customer satisfaction, preventing any chargebacks. 

For an effective communication of return policies, here are some tips that can be followed: 

• The return policy must be understandable and readily accessible on the company’s website. The return policy should contain detailed instructions on how to return a product and return conditions.
• Many jurisdictions have legal requirements governing return policies. It’s essential to be aware of and comply with these regulations.
• According to one research, 80% of customers expect free return shipping. Providing this significantly enhances customer satisfaction and can be more cost-effective than dealing with chargebacks.
• Expectations and what is being offered regarding refunds or store credits should be clearly stated.
• Policies should be following state laws and card brand regulations.
• A FAQ section should be provided to answer the customers’ queries. Also, customers’ testimonials about their positive return experience should be incorporated.
• Return policy effectiveness should be monitored to ensure necessary adjustments are made in time and reduce the chances of chargebacks.
• Return policy should be tailored based on the type of product. For example, refunding perishable goods without requiring a return is advisable. The reverse is the case when it comes to durable goods. In this case, the goods should be returned before a refund is issued, with processes like providing prepaid shipping labels to ease the process for customers.

Mistake #4: Ineffective Fraud Detection Systems

Failing to leverage fraud prevention software in retail can lead to increased chargebacks.

Some recommended chargeback management tools and strategies to enhance fraud detection include:

• Use of Clear Merchant Descriptors and Order Confirmation Emails: The business name appearing on bank statements should be easily identified by customers as the retailer. Order confirmations should be sent to assist customers in remembering their transactions, thus reducing any chances of chargebacks due to forgotten purchases.
• Implement Robust Fraud-Prevention Tools: Tools like MidMetrics Solutions should be utilized as they help analyze transaction data and flag any suspicious activity.
• Partnering with a Chargeback Management Service: Chargeback protection companies like MidMetrics specialize in managing chargebacks and can provide expertise in identifying and preventing fraudulent chargebacks.

Mistake #5: Flawed Shipping and Fulfillment Processes 

Another major contributor to retail and e-commerce chargebacks is flawed shipping and fulfillment processes. Any error in these areas can lead to issues that result in customer dissatisfaction and disputes. 

How Shipping and Fulfillment Errors Contribute to Chargebacks:

1. Incorrect Deliveries: Shipping wrong products or goods to customers can only result in chargebacks. This is because the right goods they ordered aren’t delivered to them. These cases are often because there was an error while distributing the products or goods from the fulfillment centers.
2. Delayed Shipments: When goods are delayed, and customers aren’t provided the goods in time, they tend to assume the worst has happened. As a result, they initiate a chargeback immediately so as not to fall prey to scams, especially if they were not informed of potential delays.
3. Lack of Tracking and Delivery Confirmation: Customers should be liable and given access to track their shipped goods. If no means are available for this process, then the likelihood of a chargeback is very possible. The customer will lay their emphasis on the fact that they never received the order. Also, in cases where there was no signature confirmation upon the delivery of the goods, it leaves the retailer without proof of delivery when the customer issues a chargeback dispute. 

Ways to Optimize Fulfillment Processes:

• Implement quality control – in which orders are double-checked before delivery.
• Provide accurate and timely tracking information.
• Proactively communicate with customers.
• The use of reliable shipping partners is paramount.
• Implementation of robust return and refund policies. 

Conclusion 

By addressing key issues such as poor customer service, inadequate transaction documentation, ambiguous return and refund policies, ineffective fraud detection systems, and flawed shipping and fulfillment processes, retailers can easily avoid mistakes that result in chargebacks.