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One of the most frustrating and costly challenges for any business that accepts credit cards is the process of dealing with chargebacks.

Understanding chargebacks and why they happen

A chargeback occurs when a customer requests a refund or cancellation of a charge that was placed on their credit card. Chargebacks happen for a variety of reasons, but often relate to a customer feeling unsatisfied with their purchase, or not recognizing the charge on their bill. Increasingly, chargebacks also relate to incidents of fraud or identity theft.

The costs of chargebacks

Chargebacks can be costly to businesses in a number of ways. First, of course, the merchant loses the money they had expected to receive from that purchase or transaction. The card servicer will also impose a fee for processing the chargeback. This fee is generally a percentage of the transaction amount. In addition, there is the cost of staff time and labor to handle this matter. Even if you eventually succeed in disputing a chargeback, the process can still cost you. Vito Pagano, CEO and Founder of Independent Merchant Group, notes that even if a merchant wins a chargeback dispute, the processor can still charge an additional fee for retrieving the money and returning it to the merchant.

A track record of consistent chargebacks at high numbers can have a serious impact on a merchant's ability to operate. “If a merchant is experiencing excessive chargebacks, the bank can terminate the merchant services account, preventing the business from accepting credit card transactions," Pagano says. He notes that credit card processors know which industries tend to experience a high level of chargebacks and will often adjust the pricing to account for the exposure of fraud and chargebacks when first initiating the merchant services relationship.

Avoiding chargebacks

The best way to handle chargebacks is to do everything possible to prevent them from happening in the first place.

Use a clear company identifier

Frequently, customers dispute a charge simply because they don't recognize the business name listed with the transaction. This can commonly happen in cases where a company's billing division or headquarters uses a different name than that of the department the customer interacted with. Be sure your billing descriptor or identifier is something that will be recognizable to customers. Pagano says companies can also avoid this problem by working with the merchant services provider to have their phone number listed on the consumer's credit card statement. “If a consumer finds a charge they do not recognize and a phone number is provided on the same line item as the charge, it will prompt the consumer to call the phone number on the statement first, rather than calling the issuing bank of the credit card to execute a chargeback."

Spell everything out in writing

Having all company policies spelled out clearly in writing where customers (or potential customers) can easily see them is a good strategy in general, but can be particularly helpful in preventing or resolving chargebacks. Specifically, you would want to address any policies with regards to cancellations, fees, refunds and other issues that might be the source of confusion or complaints.

Reduce the likelihood of fraud

Fraud is a significant source of chargebacks and billing disputes. With regards to tour and event companies, many transactions involve what's referred to as a CNP (Card Not Present) situation—meaning, the company doesn't physically handle the credit card. Consumers instead may enter their card information via an online reservations system. Some simple steps can greatly help here. For example, requesting a ZIP code helps ensure the information matches that on the credit card account. Pagano says merchants should also request the security code from the back of the card, which requires the person initiating the transaction to physically view the card.

More advanced fraud-prevention tools are also available, so Pagano advises merchants to consult with their credit card processor. “There are services out there to track how many purchase an IP address made in an hour, or if the 'bill to' and 'ship to' addresses are different. They can then stop the transaction bring it to a point of contact at the company to manually review the transaction and either allow it to move forward or terminate it."

Specific issues involving event and tour businesses

In the case of tours or other events, customers may sometimes forget they made reservations or may have had some kind of complaint about their experience. In these situations, customer service is essential. A courteous inquiry from a polite and professional staff member can often clear up the issue fairly quickly. Good record-keeping is also critical to handling chargebacks efficiently, as this helps a merchant clearly demonstrate if and when a customer participated in an event or made reservations.

What to do if a chargeback does happen

Virtually every merchant will have the inevitable chargeback occasionally. When it does happen, your best strategy is to work with your credit card servicer/processor. They can often help identify the reason for the chargeback, and may be able to assist in resolving the issue so the chargeback is removed. If you and/or your card processor have good documentation of all transactions and related communications, that can also help you in disputing a chargeback or having it reversed.

You want to be sure to move quickly and address chargebacks right away. Pay attention to the timeline—each step in the process has deadlines, and if you move too slowly, you may miss your window of opportunity to dispute that chargeback.

How ZOZI Advance can help

If you use ZOZI Advance, you may have already noticed a positive impact on the rate of chargebacks you experience. ZOZI solves many of the issues that can cause chargebacks to occur—and also offers ways to quickly resolve any chargebacks that may happen. This often happens before the merchant even gets involved. ZOZI's process can often resolve a dispute (or pending dispute) before you even need to worry about it. One way the company does this is by taking care of the "clear identifier" and collection of the important card information like zip and CVV2—steps that can help to avoid chargebacks from occurring in the first place.

Good communication and customer engagement can be extremely valuable. When a chargeback is initiated, ZOZI's first step is to reach out the customer to explain the charge. Frequently, that step alone resolves the issue. If not, ZOZI will pull relevant data from the reservation and transaction system to compile the proof needed to dispute the transaction on the merchant's behalf.

Of course, merchants can also do their part by helping to record documentation that can prove a customer received a service or participated in an event. This proof could include a registration/sign-in sheet, waivers, or tagged photos identifying guests in attendance. If you don't currently include such steps in your process, this is a good reason to start doing so.

Chargebacks are an annoying yet often inevitable part of doing business. Taking a few smart steps to reduce their likelihood, coupled with an efficient and sophisticated online reservations and transactions system, can go a long way in helping you save considerable time and money involved in dealing with chargebacks.