Finance Management

Chargeback: understand what it is and how to avoid this practice in 4 steps

If you work in the financial management of a company, it is essential to understand what chargeback is and what its implications are for the company. This is because, although it was created with the aim of protecting the consumer, the chargeback can negatively impact the business.

The situation is even more worrying in e-commerce, as digital purchases are the ones that tend to suffer the most chargebacks. However, everyone who works with cards as a means of payment is vulnerable to this practice.

So it is essential to know how to reduce the rate of this occurrence in the company. In this content, you will understand what chargeback is and you will know how to avoid it in 4 steps!

What is chargeback?

Chargeback is a system that reverses the sale made via card. It was created with the aim of protecting consumers against mistaken or fraudulent payments. This process has become very common in recent years due to the increase in online shopping.

In practice, chargeback is triggered by the bank or financial institution issuing the card. This is done in cases where the customer, for some reason, does not recognize or does not agree with the posting of the respective purchase on his invoice.

Generally, the bank refunds the disputed amount by reversing the customer’s invoice. As a result, the company that carried out the sale may suffer losses. However, it is worth knowing that the return takes place after an investigation and analysis by the institution.

What are the risks of chargeback for companies?

As you just read, chargeback is a system that protects customers. At the same time, it poses risks to the seller. This is because, if the negotiation is online, the company may send the purchase by mail and not be notified of the procedure in time.

Also, keep in mind that chargeback is often the result of criminal activity. These people take advantage of security flaws in online purchases and find ways to clone cards or purchase products and services improperly.

Therefore, e-commerces or companies that offer digital payment methods may be more vulnerable to chargeback. This reality has a direct impact on business earnings, as it generates unexpected losses and impacts cash flow predictability.

The situation becomes even more worrying if the company does not carry out adequate financial management . After all, the lack of organization and control can make it difficult for managers to monitor chargeback rates and understand what is triggering the occurrence.

How to avoid this practice in 4 steps?

So far, it has been possible to learn what chargeback is and what its risks are. So you need to know how to avoid it to reduce the financial impacts of this practice.

Check out 4 steps that can be considered to reduce chargeback!

1. Encourage the use of a single digital card

The unique digital card is a digitally generated option by the bank that can be used only once. In this case, the numbering and security code can be more peaceful information, as the card will be erased later.

This reduces the possibility of criminal actions with customer information. Thus, it is worth creating awareness campaigns and offering educational material to your audience.

In addition to informing them about the safest payment method, you will be sharing useful information, which can contribute to generating engagement and proximity to customers.

2. Pay attention to the shipment of the product

In purchases made online, it is customary to send the items by post or carriers. However, in situations where the buyer receives the product damaged or too late, he can try to request a direct reversal with the bank in order to reverse the purchase.

Although institutions do not always accept this request, the company exposes itself to risks in this process. Therefore, adopting good practices in shipping products and relying on reliable shipping partners helps to avoid chargebacks .

3. Dedicate yourself to inventory management

Companies that work with online sales need to be extra careful with regard to inventory management. If there is not a constant update on the items available for sale, the business runs the risk of offering products that are available.

Thus, the time it will take to fill the stock may not correspond to the maximum period set for delivery of the purchase. In this case, when delivery is attempted, the customer may refuse to receive it.

This mismatch can cause, precisely, the chargeback, impacting the company’s chargeback rates. In addition to the time lost with logistics, there will also be losses in terms of packaging and the freight spent on transportation (shipping and return).

4. Clearly disclose the cancellation policy

To prevent dissatisfied customers from seeking a refund directly from the card operator via chargeback, companies need to clearly disclose their cancellation policy.

In physical purchases, it is worth signing a contract and providing a duplicate of the document to the customer. If the business is virtual, it is valid to include a pop up with the main points of the cancellation policy and link the conclusion of the purchase to the reading of the text.

Furthermore, it is interesting to offer an efficient call center to carry out the cancellation procedure properly. By doing so, the possibility of the customer contacting the establishment to resolve the situation instead of triggering the chargeback is greater.

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