Preventing and Contesting Chargebacks for Services: Useful Advice

Preventing and Contesting Chargebacks for Services: Useful Advice

A chargeback is when a payment is reversed due to a dispute, causing a loss of income. Whether you sell digital items, physical products, or provide services, you can face chargebacks.

Preventing and dealing with chargebacks is essential to protect your business, keep customers happy, and maintain good relationships with banks. However, handling chargebacks for services may require a different approach than for other types of products.

This comprehensive guide will help you understand how chargebacks for services work and provide strategies to prevent and resolve these disputes.

Types of Products and Chargebacks

Typically, businesses sell three types of products:

  1. Digital goods (e.g., apps, music, digital games).
  2. Physical merchandise (e.g., clothing, electronics).
  3. Services (e.g., marketing, graphic design, subscriptions).

All three types can be subject to chargebacks, and they can occur for various reasons, each with its specific reason code. Some reason codes apply to all merchants, while others are specific to certain types of products.

For example:

  • Visa Reason Code 13.1 - Merchandise/Services Not Received applies to any merchant.
  • Mastercard Reason Code 4853 - Goods or Services Not as Described or Defective is generally applicable.
  • American Express Reason Code C05 - Goods/Services Canceled is more specific.

In summary, no matter what you sell, you can face chargebacks, and they can lead to additional costs for your business. Chargebacks also affect your chargeback-to-transaction ratio, which can result in extra fees and even the loss of payment processing privileges.

Preventing Chargebacks for Services

While it's impossible to completely eliminate the risk of service chargebacks, you can reduce them through specific tools and strategies.

Understanding the reasons behind service chargebacks is essential to employ effective prevention methods. The most common Visa and Mastercard chargeback reasons for services include fraud, particularly friendly fraud.

Friendly fraud occurs when a cardholder misuses the chargeback process, either intentionally or unintentionally, to get something for free or resolve an issue. To prevent these types of chargebacks when offering services, consider the following strategies:

  1. Provide Clear Service Descriptions:

    • Ensure each service has a clear and unique description.
    • Explain the service's features without using technical jargon.
    • Specify accurate timeframes for service delivery.
    • Detail what's included in different service tiers or packages.

  2. Share User-Friendly Policies:

    • Make policies such as terms and conditions and refund policies easily accessible and easy to read.
    • Include a refund time limit that exceeds the maximum chargeback filing period (usually 120 days).
    • Offer convenient and free cancellation options.
    • Clearly outline the steps customers should follow to resolve issues.
    • Explain how refunds and other concerns are handled.
    • Ensure policies are readily available on your website, service pages, checkout page, and in all communication emails.

By implementing these strategies, you can minimize the risk of service chargebacks and provide a better experience for your customers.

  1. Respect all cancellation requests.
    Many services involve recurring payments to bill customers regularly. However, if you don't promptly honor cancellation requests, it can lead to more chargebacks.

To prevent chargebacks for recurring services, send reminders a few days before each billing cycle, giving customers an easy way to cancel before renewal. When a cancellation request is received, process it promptly by stopping future payments. If a refund is due, ensure it's processed swiftly and inform the customer when they can expect the credit.

  1. Deliver top-notch services.
    Your customers deserve the best, so your services should reflect that. If your service quality falls short of customer expectations, chargebacks may occur. To prevent chargebacks for services, ensure your services meet or exceed customer expectations. If issues arise, take steps to resolve them.

  2. Clearly describe the service in billing statements.
    Customers often rely on their bank statements to identify purchases. If a customer doesn't recognize a charge or its origin, they may initiate chargebacks.

To prevent service chargebacks, use clear and concise billing descriptors for each of your merchant identification numbers. Consider mentioning the service provided in the description, making it easily identifiable. Also, include contact information in the descriptor so customers can reach out to resolve any concerns or request refunds.

  1. Maintain professionalism.
    Treating customers with respect can go a long way in preventing chargebacks. Satisfying customer needs can build goodwill, allowing you to address potential issues before they result in chargebacks.

For digital services, respond promptly to customers, offer support as needed, and adhere to deadlines and promises. For in-person services, be punctual, dress professionally, and display courtesy to customers and their associates.

How to Fight Service Chargebacks

Chargebacks are an ongoing concern, and despite efforts to prevent them, some may still occur. Therefore, you need a two-pronged approach to chargeback management: prevention and resolution. Fighting chargebacks is crucial to protect your revenue, and with Nuada, you can achieve the best results.

Here are some common reasons for service chargebacks and tips on how to fight and win them:

Common Reason #1: Customer Claims Fraudulent Transaction
Fraud is a frequent reason for chargebacks in the service industry. Documentation and identity verification tools can help fight more than 60% of service disputes.

Tools like address verification service (AVS) and card security codes prompt customers to provide information during checkout. These tools verify customer entries against bank records. If the information matches, it strengthens your case against a fraudulent chargeback.

Common Reason #2: Customer Claims Cancellation Not Honored
Chargebacks can occur when customers allege that their cancellation request wasn't acknowledged with a credit. To fight these disputes, maintain records of all interactions with customers, including cancellation requests and your responses.

If there is no evidence of a cancellation request, provide documentation supporting your claim.

Common Reason #3: Customer Claims Delayed Service
Delays in providing services may lead to chargebacks if you've already billed the customer. If you've issued a refund before a service chargeback occurs, provide evidence of the credit or refund when fighting the dispute.

Common Reason #4: Customer Disagrees with Cancellation Policy
Cancellation and refund policies should clearly state your expectations for customers. If you decline a refund based on policy compliance, chargebacks may follow. However, you can fight these chargebacks by explaining your policy, including how customers can access it and their agreement to it.

Common Reason #5: Cardholder Claims No Connection to the Service
Sometimes, cardholders make purchases on behalf of others, leading to chargebacks when they don't recognize the transaction. Provide evidence that links the cardholder to the service, even if they weren't the end user.
Common Reason #6:
One of the common issues encountered is when a customer asserts that they never received travel and entertainment services. Customers may initiate chargebacks following the utilization of your transportation, accommodation, or other hospitality services. To effectively address chargebacks stemming from travel and entertainment (T&E) services, it is crucial to furnish supporting documentation that confirms:

  1. The provision of the service.
  2. Delivery of the ticket to the cardholder's billing address.
  3. Scanning of the ticket or boarding pass at the gate.
  4. The earning or redemption of frequent flier miles or other loyalty program rewards as part of the transaction.
  5. Additional purchases made by the cardholder related to the initial transaction, such as seat upgrades, extra baggage, or onboard purchases.