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How Chargebacks Could Destroy Your Home Business

by Melissa Miller

Having a work-from-home business is great.  There are tons of perks to choosing that particular career path.  But that isn’t the point of this article.  The point of this article is to educate you about a hidden mystery of the business world that could make everything come crashing down.

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Before launching your home business, you probably did a ton of research.  You wanted to know exactly what you were getting yourself into.  Since then, you’ve probably educated yourself even more.  As twists and turns arise in your business, you go looking for answers.

In all that research, there was probably nothing written about one of the biggest dangers to your home business utopia.  Chargebacks are a nasty hidden secret that few people talk about until they have to.  If you are reading this, we hope this is an opportunity to educate you before it is too late!

Generally speaking, a chargeback is a credit card refund.  That simple definition may sound harmless, but it really isn’t.  If you accept credit cards as a form of payment, your business could be subjected to one of these business nightmares.

What Happens If You Experience a Chargeback?

The chargeback process can be lengthy and complicated.  And it most definitely is expensive.

If a customer is successful at filing a chargeback, your account will automatically be ducted that amount.  Not only will you lose the profits from that sale, the original product probably won’t be returned – that eliminates the potential for a future profit.

In addition to losing those profits, you will also be assessed a chargeback fee.  Each transaction that is refunded will result in a fee.  This fee can range from $20 to $100.

If you receive too many chargebacks in a given time period (more than 1-2% of total sales), your merchant processor will slap you with a hefty fine – $5,000.  If the chargebacks still remain excessive after the first fine, you’ll receive a second fine – $10,000!

If chargebacks skyrocket past 3% of total sales, the merchant processor will simply pull the plug on your account.  If this happens, you won’t be able to secure another account.  You’ll have to stop accepting credit cards as a form of payment or go out of business.

How to Prevent Chargebacks

To know how to prevent chargebacks, you must first know what causes them.  Credit card companies sort chargebacks into four categories: clerical, technical, quality, or fraud.

Preventing Clerical Issues

In order to prevent chargebacks based on clerical issues, you must focus on your customer service.  Make sure the card is never charged twice for the same transaction.  Terminate reoccurring charges as soon as the customer makes the request.  Provide refunds in a timely fashion.  Answer emails and phone calls promptly.

Preventing Technical Issues

Make sure the technical side of your business is always running smoothly.  Credit card companies file a chargeback in this category if there is an expired authorization, a bank processing error, non-sufficient funds, etc.

Preventing Quality Issues

Customers can easily file a chargeback if the product or service they received isn’t of the quality they expect.  Check your product descriptions.  Make sure they are thorough and accurate.  Include several images of the product, taken from different angles.  Zoom in on special features or construction details.

Preventing Fraud

Perhaps the biggest cause of chargebacks is unauthorized purchases.  Fraud detection and deterrence is difficult, but not impossible.

There are several indicators of fraud.  Take the time to review these carefully; then, always be on the lookout for them.

Take advantage of all the fraud prevention tools that are available from your processor (blacklist, whitelist, etc.) and the credit card companies (CVV2, Verified by Visa, MasterCard SecureCode, etc.).

Has your business received a chargeback yet?  Tell us about your experience.  If you haven’t come up against a chargeback yet, let us know if you have any questions.

About the Author…

Guest author Dean Adamson has years of business experience.  Unfortunately, he also has experience with chargebacks.  Dean has recently partnered up with Chargebacks911 to share chargeback information with those who might not be as familiar with the process. 


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{ 2 comments… read them below or add one }

1 Mike October 3, 2013 at 1:15 pm

Good article

As an additional note, in some instances, the processor may not even assess any fines and go directly to close the account and place you on MATCH.

I’ve worked at a processor for years and have seen a number of businesses crushed by chargebacks, although the business did nothing wrong themselves.

2 Melissa Miller October 3, 2013 at 1:26 pm

Thanks for the input, Mike!

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