Realizing that a customer filed for a chargeback can be discouraging, especially when you would have been willing to respond to the situation had they reached out. Fighting these disputes is time-consuming and eats into your profits, but we can help you avoid chargebacks, increase profits, and save time by providing some easy methods you can incorporate into your business strategy.

What are chargebacks?

A chargeback occurs when a credit or debit card issuer returns spent funds to the cardholder due to said cardholder’s dispute of a charge. Unlike a refund, which involves the business initiating the reversal of funds, chargebacks involve the bank taking back the funds and holding on to them while the dispute is investigated and verified. If the customer’s claim is deemed legitimate, the funds are returned to them.

Why do chargebacks happen?

Credit card chargebacks offer a form of protection for consumers, but they’re also a big risk for merchants. If you fail to provide enough evidence to contest the chargeback, you could lose the initial payment and get charged additional fees ranging anywhere from $15 to $100. However, if you can provide evidence that the transaction was legitimate, the bank will release the money back to your merchant account.

Chargebacks may occur for the following reasons:

  • The cardholder didn’t authorize/didn’t recognize the charge.
  • The merchant, whether accidentally or not, charged the customer twice.
  • The customer never received the agreed-upon product or service.
  • The quality of the product or service wasn’t as expected.

How do chargebacks work?

Thankfully, chargebacks have particular limits and rules. These include a limited time window during which the consumer can initiate the credit card chargeback. This window can range from 60 to 120 days.
Individual card processing companies each have their own procedures, but here are some of the steps you can expect:

  • Customer makes a purchase. The customer makes a purchase (whether in person, online, or through an app) and the transaction is quickly processed by the business.
  • Customer files a dispute. The customer realizes something is wrong: either the product or service wasn’t what they paid for, they realize they were charged more than agreed upon, or they were charged for a purchase they didn’t authorize. The customer then reaches out to the bank to dispute the charge.

    The investigation begins by using transaction data, such as timestamps, location data, and IP addresses to determine whether the customer was involved in the transaction, or whether it might have been a fraudulent transaction.

  • Bank reaches out to the merchant. Once that initial data is verified, the bank reaches out to the merchant, asking them to provide evidence to refute the chargeback. The kind of evidence you provide as a merchant can vary depending on whether it was an in-person transaction or an online transaction.
  • If in-person, you would need to show how the card-present transaction was processed.
  • If online or in-app, you may need to provide confirmation/follow-up emails, electronic invoices, tracking details, or similar data as evidence.
  • Accepting or disputing the chargeback. As a merchant, you have two options: You can accept and let the funds be returned to the cardholder, but keep in mind that the bank will still levy a chargeback fee. You can also try to dispute it, and the bank would have to investigate the charge further. This can take anywhere from 10 days to 4 months.
  • A decision is made. If the bank determines the transaction was legitimate, the customer can either accept this decision or continue to dispute it. This process is known as arbitration, and it involves passing the data provided by both parties on to the credit card company (Visa or MasterCard, for example) and allowing them to make the final decision.

How many chargebacks are normal for businesses?

The standards for chargebacks vary depending on card companies and networks. That being said, the highest acceptable figure tends to be a 1% chargeback-to-transaction ratio. Depending on where your business falls on the risk profile, the fee levied by the banks or payment service providers can range from a low $15 to well over $100 if you have a higher chargeback ratio. The more chargebacks you get, the more likely you are to get a high fee. There is also a possibility of losing your merchant account — the one you use to process credit card payments — if you have a chargeback ratio that your bank deems excessive (which is generally anything greater than 1% or 1.5%).

Card companies also do their part to reduce chargebacks for businesses. Here are some examples:

  • Visa: Visa’s incentive programs are Visa Fraud Monitoring Program (VFMP) and Visa Dispute Monitoring Program (VDMP).
  • MasterCard: MasterCard has the Excessive Chargeback Program (ECP), which consists of two levels: Excessive Chargeback Merchant (ECM) and High Excessive Chargeback Merchant (HECM).


Common chargeback reasons and how to prevent them

Unfortunately, it’s impossible to completely prevent chargebacks. That being said, with an effective management strategy, you can reduce the likelihood of customers requesting chargebacks and minimize their impact on your business. The best way to protect yourself and your business is by using the recommended practices on credit card use and payment processors.

The following offers some practices for reducing chargebacks depending on the particular situation:


A fraudulent purchase is made with a stolen credit card.


  • Ask the cardholder to write their signature on the receipt for in-person transactions.
  • For online or in-app, have customers include the expiration date and security code for the card, as well as an address you can verify.
  • If you notice suspicious transactions, such as orders that are larger than usual or involving several expensive items, reach out to the customer yourself.


Goods or services weren’t received, were damaged, or shipping took longer than expected.


  • Ship the product shortly after charging the customer. The sooner the better.
  • Be transparent about orders that may take a while to be shipped and delivered.
  • Respond to customer queries about shipping as quickly as possible.



The product was returned or the transaction was canceled, but the customer hasn’t yet received a refund.


  • Have a clear, easy-to-follow return policy and process refunds quickly.



The goods or services were defective, damaged, or not as described.


  • Make sure photos are true-to-life and descriptions are detailed and easy to understand.
  • Package your products securely to avoid them getting damaged in transit, and offer refunds or replacements if you receive a complaint about defective or damaged products.



The customer doesn’t recognize the business name on their transaction history or card statement.


  • Make sure your business name or domain appears and is recognizable on the billing statement and inform the customer ahead of time if they do not.



Subscription-based services can be valuable to merchants, but cardholders who forgot about the renewals may want to dispute them.

  • Offer updates about the subscription status.
  • Include clear instructions for canceling the service.

Another source of chargebacks

Another common source of credit card chargebacks is something called friendly fraud. This type of fraud occurs when a customer makes a legitimate purchase but still disputes the transaction with their credit card company in order to get their money back, while also keeping the product they purchased.

You can try to avoid friendly fraud by implementing similar prevention strategies for other types of fraud, such as:

  • Verifying the customer’s billing address and that it matches the address associated with their credit card.
  • Requiring signature confirmation.
  • Checking sales records to identify customers who make frequent chargeback requests and avoiding doing business with them again in the future.

As we said previously, chargebacks are unavoidable. However, with proper knowledge and tools, you can reduce their frequency and save your business some money. At Accepta we offer monthly educational articles, as well as secure payment processing solutions for businesses of all industries. For more information, contact us at (787) 774-1555 or visit us at