Tips for Chargeback Prevention

The chargeback system was established by the card associations as a means to resolve conflicts between cardholders and merchants, with chargeback rules governed by Visa and MasterCard. Chargebacks occur for a variety of reasons including fraudulent use of a credit card, dissatisfaction with service or merchandise, duplicate charges and invalid card numbers. They can be initiated by either the cardholder or a cardholder’s bank.

The time period during which a transaction may be charged back is limited by Visa and MasterCard regulations. Depending on the nature of the dispute, the consumer typically has 120–180 days from the initial date of the transaction to challenge it. Once the chargeback is initiated, the merchant bank has only 30 days to respond.

Merchants should respond to the request within a shorter timeframe to account for possible posting delays between the issuer and the merchant bank. It is imperative that the merchant responds within the specified timeframe, or the chargeback is automatically lost. Once the merchant receives notification of the chargeback, they may either accept it or dispute it.

There are two entities associated with the credit card chargeback system – retrieval requests and chargebacks.

  • A retrieval request comes from a cardholder or their bank, requesting to see a copy of a sales draft or a mail order form. This can be done for a variety of reasons ranging from verifying a sale to tax purposes, and sometimes for fraud reasons. Failure to supply a draft by the date requested in the retrieval letter could result in a chargeback.
  • A chargeback is the reversal of a transaction previously processed by your business. The amount of the transaction is deducted from your account. Chargebacks are usually initiated by the customer (the cardholder), but can also be initiated by the cardholder’s bank. While some chargebacks cannot be prevented, the basic steps outlined below prevent some of the most common errors and help you avoid chargebacks when possible.

MOTO Transactions

Mail-order/telephone-order (MOTO) transactions are very risky because the card and cardholder are not present. Because of the higher incidence of fraud, the following suggestions are offered to assist you. However, they will not prevent all chargebacks associated with MOTO business.

  • When completing a MOTO order, request the cardholder’s billing address and phone number. Indicate on the sales draft what was purchased or the services rendered. Sometimes, customers forget specific transactions and the more information you provide them, the better.
  • Always ask for the CVV or CCV2 number for AVS validation. This will allow you to verify the cardholder’s billing address with the card-issuing bank, and can assist in identifying unauthorized transactions.