What exactly are chargebacks?
Chargebacks happen when a customer disputes a transaction. Customers may dispute transactions for a number of reasons, including non-delivery of products and services, miscommunication about a refund, misunderstanding of the amount of the charge, or a variety of other reasons.
Whether you realize it or not, card associations are paying attention to your chargebacks! Specifically, they keep an eye on your chargeback ratio.
What is a chargeback ratio?
A chargeback ratio measures the ratio between the number of chargebacks to the number of transactions you have earned as a merchant.
Calculating Your Chargeback Ratio Is Easy
Simply divide the number of chargebacks by the number of transactions to determine your chargeback ratio. However, it’s important to note that there is an important distinction in how Mastercard and Visa calculate chargeback ratios.
How Visa Calculates Your Chargeback Ratio
Visa divides the number of chargebacks for the current month by the number of transactions for the current month.
How Mastercard Calculates Your Chargeback Ratio
Mastercard, on the other hand, divides the number of chargebacks for the current month by the number of transactions of the previous month.
Regardless of the card association, it’s crucial that you keep your chargeback ratios to a minimum so that your business stays off the “risk list”.
As a general rule of thumb, a chargeback ratio at 1% or above can potentially harm your business, so you will want to do everything you can to prevent chargebacks from occurring.
Here are a few proven ways you can prevent chargebacks:
Chargeback Prevention Tips that Work
- Process credit immediately
- If you have agreed to issue a refund to a customer, let them know when they will receive their refund.
- Be sure to clearly explain your refund or exchange policy before completing your customer’s order.
- Obtain the customer’s signature for items picked up in store, work orders, etc.
- You may want to consider billing customers only after products are shipped or service has been provided.
Need 1-on-1 Help Navigating a Chargeback Issue?
When it comes to chargebacks, timing is critical.
We have extensive experience in helping businesses successfully navigate chargebacks.
Get in touch with us now for one-on-one help in resolving a current chargeback issue or to create a game plan to limit chargebacks in your business.
