Chargebacks are a serious problem for most companies that accept credit cards. Reducing chargebacks can help a company maintain its profits and its reputation. Though there's no guaranteed way to prevent chargebacks, by using some methods for reducing chargebacks a business can minimize the damage done by chargebacks.

Most merchants today accept credit cards, but accepting credit cards comes with the risk of chargebacks. A chargeback occurs when a customer complains to their credit card company about either a fraudulent charge on their credit card or an unsatisfactory purchase from a company, and the credit card company reverses the charges. A chargeback is not the same as a refund issued by the merchant. Chargebacks are a problem for merchants because the merchant loses the money from the sale plus any fines levied by the bank. Merchants who get a lot of chargebacks can even end up on a list of merchants the credit card companies will no longer do business with.

Because chargebacks can be so damaging to a business, it's important to find ways to reduce chargebacks. Reducing chargebacks generally means reducing credit card fraud and providing good customer service. Though there is no way to completely prevent credit card fraud or make every difficult customer happy, by focusing on these two areas is it possible to reduce chargebacks.

The first method of reducing chargebacks is to try to prevent credit card fraud. Credit card fraud generally occurs when a thief has stolen a person's identity, credit card, or credit card information. It may not be possible to stop every case of fraud, but there are some ways merchants can reduce the risk of chargebacks due to fraud. Most of the following methods involve trying to verify that the person making the purchase is the legitimate owner of the credit card:

• When it's possible to examine the customer's credit card, make sure the signatures on the card and the receipt match. You can also ask them to provide ID if you have any doubts.
• When accepting orders online, require the customer to enter the security code on the back of the card, which is harder to steal than the card number itself.
• Use an address verification system (AVS) to compare the billing address entered by the customer to the billing address on file. Using these systems costs merchants a small fee, but they can help reduce fraud and chargebacks because the thief often does not have the customer's address. You can also check the person's phone number or computer IP address against their billing address for a location match. These methods can sometimes flag a legitimate order, such as if a customer has recently moved and the system is not yet updated. In these cases, politely talking with the person over the phone about your concerns and perhaps asking them to send a copy of their ID and proof of their new address may help resolve the issue.
• Use programs like Verified by Visa that require customers to enter a password known only to the card's owner.
• Pay special attention to any unusually small or large orders, or orders that use the fastest and most expensive shipping method. Also be more cautious with orders involving electronics, jewelry, and other items that can be resold, and orders of "soft" products that are downloaded instead of shipped, since these are more common targets of fraud.
• Be wary of orders being shipped to an address other than the credit card billing address. There may be legitimate reasons for the customer to send their purchase to an address other than their own, but it would be wise to check up on these purchases. Many businesses will not ship to P.O. Boxes or forwarding services, and use extreme caution when shipping overseas to reduce fraud and chargebacks.
• If a business sells to international customers, they should be especially wary of countries that are considered high risk for fraud, such as some developing countries and countries in Eastern Europe. Customers from these countries may need extra scrutiny to determine if they are legitimate.
• Require customers to sign for their products when they receive them.
• If any transaction seem suspicious, don't be afraid to call the customer and the bank that issued their card to verify that it is legitimate.

While none of these methods are fool-proof, they all reduce the risk of chargebacks.

The other side to reducing chargebacks is good customer service. Though some customers are determined not to be pleased, most are reasonable if you use a few simple steps to reduce frustration and confusion:

• Make sure it is clear to your customers what they are buying and what costs they are incurring so there is no confusion later.
• State your policies clearly near where the customer checks out, including refund and return policies and shipping policies.
• Let customers know what they will see on their credit card statement, especially if it's a third party processor, so they don't mistake legitimate charges for fraudulent ones.
• Have good communication with customers: send notification emails when orders are placed and when products are shipped; make it easy for customers to contact you, even if only through email; and reply promptly and politely to customer questions.
• In disagreements with customers, remember that your goal is to help your business be successful, not to "win" an argument. Even when the customer is wrong, if you are polite, show sincere empathy for their frustrations, and try to work with the customer you will often be able to diffuse unpleasant encounters.
• Offer incentives for customer loyalty, such as coupons or special offers for good customers.

Again, it may not be possible to resolve all customer complaints, but by taking the time to work with customers before they go to their credit card companies you can reduce the number of chargebacks you have to deal with.

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