How Your Business Can Reduce Chargebacks


Chargebacks can occur for a variety of reasons including fraudulent use of a credit card, dissatisfaction with service or merchandise, and duplicate charges. They are one of the less glamorous sides of the payments business and can instill dread and frustration in most businesses. However, there are ways to reduce and sometimes even eliminate chargebacks.

The chargeback system was established as a means to resolve conflicts between cardholders and businesses, and their rules and regulations are governed by the card associations (Visa, Discover, MasterCard, American Express). They can be initiated by either the cardholder directly, or a cardholder’s bank.

There are several different types of chargebacks:

  • Criminal Fraud – When a stolen card is utilized to make a purchase.

  • Merchant Error – When the business makes a clerical error such as a duplicate charge or incorrect billing amount.

  • Service Error – When a company has an inadequate return policy, misrepresents their products, or its services were not fully delivered to their client’s satisfaction.

  • Friendly Fraud – When a customer has buyer’s remorse and changes their mind or does not recognize the charge on their billing statement due to the payment descriptor or difference in currency.

For a business, chargebacks are a headache, but you can help reduce chargebacks and alleviate concerns by following these five steps:

1. Utilize fraud filters

There are two standard security and fraud filters in the market that businesses can use today. 

Address Verification System (AVS) – This verification requires cardholders to include their billing address along with the card information when running a card-not-present transaction (processed by phone, online, or simply processing a card that cannot be read via the magnetic stripe or chip). The address is then compared to bank records and assigned a code based on how close the address matches. Businesses can then choose to automatically decline transactions based on their AVS code. At HG, we advise that businesses only accept transactions that have valid AVS responses. 


Card Verification Code (CVC/CVV2)  CVC filtering is much more straightforward than AVS verification. The CVC/CVV2 code is the three-digit security code that is listed on the back of every Visa, MasterCard, and Discover credit card. On American Express, it’s the four-digit code listed on the front of the card in the upper right. CVC/CVV2 verification requires the code to be entered along with the rest of the card information when attempting a transaction which is then compared to bank records. Unlike AVS, there are no varying degrees of similarity. The code either matches or it doesn’t. A CVC/CVV2 match typically indicates that the cardholder has the card in his or her possession during the transaction, thereby reducing the possibility of fraud. Hadfield Group also advises its clients to automatically decline transactions with CVC/CVV2 mismatches, but the options exists for businesses to do as the please.

2. Use clear statement descriptors

One thing to consider for chargebacks is the possibility that a customer simply does not recognize a transaction as it appears on their statement. In most cases, this is the result of a poor statement descriptor. Simply put, a businesses descriptor (the transaction description that appears on the customer’s credit card statement or online activity report) should be easily relatable to the merchant’s business name. This feature is controlled by your credit card processor and should be setup at the time of account enrollment. It can also be changed at any time to reflect business changes or updates.

For example, a business called 'Main Street Store' should not have a descriptor reading 'Downtown Store.' This leads to customer confusion and chargebacks. In cases where a businesses descriptor is significantly different from the business name, such as in the case of large corporations with multiple DBAs ('doing business as' name), descriptors should include the DBA name and website or product name so that the customer can easily recognize the transaction.

In addition, businesses should also notify customers about how a charge will appear on their statement. This can be done by providing a statement on your website, or by sending out a confirmation email.

3. Employ risk rules and consultation

Risk and chargeback management is more than just utilizing the right technology. Make sure to consult your payment processor on the ways that they can assist you in reducing your liability. At HG, the first line of defense is our processing network. It includes global validation tests, a real-time proprietary risk rules engine, and PCI Level 1 Compliance. Every business is susceptible to fraud. Verify that your payment processor has an in-house risk management team that can deploy and develop a customized and comprehensive fraud prevention strategy that suits your needs.

4. Use tracking numbers and compare shipping/billing addresses  

For businesses who deliver physical goods, it is critical that shipment tracking numbers are used. The level of tracking, such as requiring signature confirmation, is largely up to the businesses discretion. Of course, higher levels of tracking will be more expensive, but for certain large ticket transactions the added security is a worthwhile investment. Having tracking numbers is always a big help in the dispute process.

It is also advised that businesses compare customer billing and shipping addresses. While it is fairly common for the two to differ to varying degrees, businesses should be wary not to ship to an address that is vastly different from a customers billing addresses, such as different states or countries. If a business does choose to ship to an outside address, additional verification steps should be taken, such as calling the card issuer (the business that issued the card, i.e. Capital One, Chase Bank) for verification.

5. Simplify the refund process and make it easy

In our experience, customers my chargeback a transaction from the sale of a product that they were simply just trying to return. If the return process became cumbersome, the client became irritated and disputed the sale as the easier course of action to obtain their money. Customers should be able to make a simple request for a refund and have it processed within a reasonable time frame. It is highly recommended that businesses have a fast and reliable customer service process and have the customer service contacts properly disclosed. One suggestion would be to include the customer service number or email as part of the statement descriptor so that customers know who to contact without having to search.

Once a refund is requested, customers should be notified as to how long they will have to wait before seeing the refund on their statement. As a rule, a shorter wait time is better. For this reason, requiring post-marked letters or Return Merchandise (RMAs) for refunds can lead to heightened chargebacks.

Customers should also be notified when a refund is issued and given the refund date as well as some means of tracking it. Furthermore, refunds should always be issued to the same card that made the original transaction. A business should never issue a check in place of a credit card refund as it will not be recognized by the card associations.

Always be proactive

Understanding the reasons behind chargebacks empowers businesses to prevent them from happening in the future. While there are many reasons for disputed sales, taking steps within the five main tips discussed here should ensure greater profitability and streamlined operations for your business. 

With attentiveness and support from your payment processor, chargebacks can be reduced, and headaches can be eliminated.