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Chargebacks and your business

On Behalf of | Mar 14, 2023 | Business Law

As a business owner, you may need to be wary of the impact that chargebacks can have on your bottom line. Chargebacks can only happen when a customer has used a credit card to reimburse your company for purchasing goods or services. There are certain situations in which the funds from that card can be reversed, essentially meaning that the payment you were owed  – and expecting – transfers back to a customer’s card balance. This is known as a chargeback.

Not only do you need to know why this happens, but it’s also important to understand what options you have when one occurs. Let’s take a look at how chargebacks work and what you can do to protect your business.

A customer dispute starts the process

First and foremost, the reason for a chargeback is simply that a customer disputes a charge to your company. Their card was run, but they no longer want to send you that payment, so they’re having the credit card company cancel the payment after the fact. They may claim that they never received the goods or services that they were paying for, for example.

Will you know in advance?

No, there is no warning before a chargeback occurs. This isn’t something that happens because the card gets denied or because it lacks funds. You will run the card during the purchase and the transaction is going to appear to go through. However, the customer will ask the credit card company to reverse that transaction. Even if you have already been paid, there are situations wherein the lender will subsequently remove those funds from your account.

Can you stop this process?

You may have options to rebut the chargeback itself. You can use documentation to prove that a payment was warranted, for example. However, it’s very important to respond to the request. If you do not do so, the bank usually rules in favor of the customer and processes the chargeback. To prevent this, you’ll need to rebut it and show that the transaction should still go through.

Of course, this can become a very complicated process and you may not feel that you are being treated fairly by the customer or the bank. In a scenario like this, it’s important to know about all the other legal options you may have and to seek legal guidance whenever necessary.