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Credit Card Chargebacks and Reversals: How They Can Impact a Business’ Bottom Line

You’ve decided to refund credit cards to your customers. Congratulations! Congratulations!

What type of credit card refund can you offer? There are two types of credit card refunds available: chargebacks or reversals.

Chargebacks and reverse charges can have a significant impact on the bottom line of a business when it comes to credit card processing. Here are the details about what they do and how you can avoid them.

What’s a Chargeback?

A chargeback occurs when a customer disputes the charge on their credit card statement and asks for a refund from the issuer. The merchant is then contacted by the issuer and asked for the money to be returned. Banks may charge additional fees if the merchant doesn’t have enough money to pay the refund.

What’s a Reversal?

A reversal occurs when a merchant cancels an order before it has been completed. If the customer makes a change in their mind or the merchant is unable to fulfill the order, a reversal can occur. If a customer disputes a charge and the issuer agrees with the customer, reversals may also be possible.

How Can Chargebacks and Reversals Affect Businesses?

Your business can be negatively affected by chargebacks or reversals. Your credit card processor may charge you a fee if you dispute a charge. Your bank might also charge additional fees if there is not enough money in your account for a refund. Your credit card processor could raise your rates or terminate your account if you have a lot of chargebacks and reversals.

Businesses can lose revenue due to both chargebacks and reversals. These charges can also be associated with additional fees that can quickly add up.

What Are the Consequences of Chargebacks and Reversals?

Businesses can be affected by chargebacks and reverses.

  1. Additional fees: Chargebacks and reverses can result in higher costs. These fees can include return shipping costs and processing fees.
  2. Loss of revenue: A transaction that is reversed results in the loss of revenue for the business. This can hurt your bottom line, making it more difficult to achieve your financial goals.
  3. Reputation damage: Chargebacks or reversals could cause damage to your business’s image. Customers may be less likely to do business with your company in the future.
  4. Risk of fraud increases: Reversals and chargebacks can raise the risk of fraud. Criminals might target businesses with a history of chargebacks or reversals.
  5. Account closures: Banks may close merchant accounts in extreme cases due to chargebacks or reversals. This could make it impossible or impossible for your company to accept credit card payments in the future.

How Can You Prevent Chargebacks and Reversals?

You can take steps to avoid chargebacks or reversals.

  1. Provide quality products, and services: It is important to provide quality products and services to avoid chargebacks or reversals. Satisfied customers are more likely to contest a charge.
  2. Communicate clearly: Be clear with your customers. You should also provide detailed descriptions of your products or services.
  3. Authorization: Before you can process a transaction, ensure that you have the authorization of your customer. This can be in the form of a signature or verbal confirmation.
  4. Monitor activity: Pay attention to suspicious charges and keep an eye on your accounts. Contact your customer immediately if you notice something not right.
  5. Keep your software and systems current. This will prevent fraud and lower the chance of making mistakes.

Businesses can suffer from chargebacks and reverse charges. However, there are ways to avoid them. You can reduce the negative impact on your merchant account by following these tips.

Is there another way to recover revenue lost due to a chargeback?

You’re likely feeling very frustrated if you have been charged back. You’re probably feeling frustrated because that was money you had been counting on, and it’s gone.

But don’t despair! There are some things you can do to recover your revenue.

Begin by reaching out to the customer to find out if they were unhappy with their purchase. If the problem persists, you should try to resolve it. Customers often want to feel heard and that their concerns are being considered.

If the chargeback was fraudulent, you might offer the customer a full refund. You can save yourself the trouble of fighting the chargeback and may even be able to keep the customer company.

Reach out to your bank or credit card processor to get some suggestions on how to handle chargebacks. You may find some useful tips and resources there.

Although chargebacks can be very frustrating, there are ways around them. These tips will help you minimize the negative impact on your business.

Knowing the difference between chargebacks or reversals will help you decide which type and amount of refund you should offer. Check with your bank or credit card processor to determine if there are any restrictions regarding the type of refunds you can offer.

Refunds are a great way for customers to see that you value them. Customers will be able to do business again with you by offering easy-to-use payment options.

The above tips are a great way to prevent chargebacks or reversals but if you should find that your merchant account is not flexible when it comes to recouping or disputing a chargeback then maybe it is time to look for a new merchant account.  Balanced Processing Partners are credit card consultants that work with various merchant account partners that may be a better option for your business. 

Please feel free to reach out to us and see how we can help with a new merchant account.  We can be contacted via phone at (800) 354-6256 or via email at [email protected].