Chargebacks are a continuous and taxing revenue drain for retailers. While some chargebacks may only cost a few cents, others can cost retailers up to three times the amount of the original transaction. This creates a painful situation for merchants who already operate under thin profit margins. Even worse, chargebacks can erode relationships with trusted payment processors and lead to hours of wasted time and labor.
While some retailers consider chargebacks to be another harsh reality of running a business, others are taking measures to strike back. Below is a step-by-step guide to help regain control of chargebacks and the single best step you can take to reduce chargeback-related stress.
Why Are Retail Chargebacks On The Rise?
“The 2020 confluence of digital sales, economic hardship and ease of making a chargeback has turned an irritating issue into a near crisis. According to Monica Eaton-Cardone, co-founder of Chargeback911, chargebacks are out of control and up more than 90 percent.”
– Nicholas Upton, Franchise Times
Before diving into the deep end of the chargeback pool, it is helpful to understand why chargebacks seem to be spiking for many retailers. There are several key reasons why some retailers are reporting a 90 percent increase in chargebacks:
A surge in online ordering that has not abated since COVID
A rise in fraudulent activity between 2018 and 2021
An increase in the percentage of legitimate customers who dispute charges
Retailers’ failure to take measures to minimize chargeback activity
What Steps Can You Take To Help Reduce Chargebacks?
As the owner or operator of a retail business, it’s up to you to address the recent surge in chargeback activity and take steps to manage it. While no magic bullet will eliminate chargeback-related stress, the four steps below can help you win the battle against chargebacks.
Step One: Determine WHY Your Chargebacks Are Occurring
The path to fewer chargebacks begins with a keen understanding of why they are taking place. Carve out some time to sit down and isolate your chargeback activity from the past two years. Then, review each case and categorize each incident as one of the following types:
Merchant Error: This type of chargeback occurs when a retailer processes payment incorrectly or fails to deliver products as promised.
True Fraud: True fraud usually occurs when a cybercriminal steals another person’s credit card information and uses it to make a purchase.
Friendly Fraud: This type of incident occurs when a legitimate customer makes a purchase and later disputes the charge.
Step Two: Review Your Record-Keeping Procedures
Upon completion of Step One, you likely noticed that a sizable percentage of your chargeback activity fell into the “Friendly Fraud” category. All too often, these instances occur because it’s too easy for customers to simply report a charge as fraudulent.
By keeping clean, organized receipts and purchasing records, you can dramatically reduce costs associated with friendly fraud. That said, take a long look at your record-keeping process and establish procedures for maintaining clean sales receipts for every order.
Step Three: Update Your Return Policy And Post It Clearly In Multiple Locations
Dealing with returns is certainly not pleasant. But the cost of handling returns is more palatable than chargeback costs. However, your customers should never have to spend time tracking down your return policy. If finding your return policy is like a tough game of hide-and-seek, then you have work to do!
Your return policy should be clear, succinct, and leave nothing to the imagination. Make sure you let customers know how long they have to return items, how long the process will take, and how much the return process will cost them. Do your best to make the process as clean and simple as possible. Then, be sure to post your policy in obvious locations, such as the following:
Your retail website footer
On order notification emails
Within your FAQ page
On your product pages
Within your online chat platform
Step Four: Don’t Be Afraid To Create A Blacklist
As you periodically review your chargeback activity, you may notice that a handful of customers are responsible for a sizable percentage of your “friendly fraud.” While you may be reluctant to turn down their business, there are some cases when it’s a wise decision to “Blacklist” certain customers. Key offenders to put on the list are those who end up disputing charges more frequently than they actually keep their orders.
What Is The Single Best Step You Can Take To Manage Chargebacks?
Chargebacks remain a costly and time-consuming challenge to retailers across the globe. By following the steps above and embracing the challenge head-on, you can gradually put your business on the path to fewer chargebacks.
While the above measures can help, the single best step you can take to manage chargebacks is to partner with an experienced 3PL provider. With a trusted partner monitoring your order processing and chargebacks, you can reduce your daily stress and devote more time to core business pursuits. As you consider potential partners, remember that not all 3PL providers are created equal. Ideally, the 3PL provider you select should have the following:
At least 10 years of experience serving e-commerce companies and online retailers
A strong working knowledge of your return policy
A family-oriented culture that nurtures long-term partnerships
A clear, effective Returns Management protocol
Multi-warehouse solutions and a firm commitment to inventory management
A proven track record of success managing chargeback activity for businesses in your industry
Strong analytical and reporting capabilities to detect trends in chargeback activity
We invite you to contact us at Symbia Logistics to discover why retailers across America turn to us to minimize chargebacks and reduce stress. Recognized as one of the Nation’s Top 100 3PL providers in 2020 and 2021, Symbia has the experience and resources to manage your order processing and ease while reducing your overall chargeback activity. We look forward to serving as the most valuable tool in your arsenal in the battle against chargebacks!
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