How Problematic Are Chargebacks for Business Owners?

Chargebacks are a reality of accepting credit card payments. While many chargebacks are requested for valid reasons, there are plenty of cases in which disputes are initiated despite the merchant holding up every aspect of their end of the bargain. Unfortunately, many merchants don’t really understand the dispute process, how to handle a chargeback, or the consequences that chargebacks represent to the health of their businesses. Those consequences can include unexpected drains on revenue, penalties levied by the card companies, and across-the-board rate increases. 

Chargebacks Impact Revenue and Cash Flow

Chargebacks may not always be avoidable, but whether they’re legitimate or not, lost chargebacks always impact revenues in negative and often unexpected ways. That’s especially true for small businesses selling high-value products or services, where even a single chargeback can be potentially catastrophic if the company isn’t well prepared to deal with it. Not only do lost disputes claw back revenue, potentially from completely valid sales, they can also potentially impact cash flow. That’s especially true for merchants not keeping a diligent eye on their dispute notices, creating the possibility of income a company was depending on suddenly not being available when it comes time to take care of payroll or debt payments. 

Chargebacks Impact Status with Card Issuers

The major credit card companies take chargebacks very seriously, and all of them put programs and safeguards into place to try to minimize them. Not only do chargebacks represent lost revenue for the card companies as well, but they also represent potential fraud – one of the primary concerns of every card issuer. As a result, merchants that suffer from high chargeback rates or an excessive number of disputes in a single month may find themselves enrolled in one of the card companies’ chargebacks and fraud monitoring programs. That’s no big deal for merchants who can right the ship and get back in good standing quickly, but merchants who remain in fraud or chargeback monitoring programs for too long are subject to penalties on each chargeback or heavy assessment fees that can hit $25,000 with Visa, and as much as $100,000 with Mastercard. 

Chargebacks Drive Up Rates

Chargeback fraud impacts everyone, not just the credit card issuers or the merchants suffering from it. The major credit card companies are in the payments game to make money, and they don’t just write off losses from chargebacks or fraud as the cost of doing business – those costs are passed on to merchants and consumers in the form of elevated transaction and card fees. That means that high chargeback rates impact everyone, including companies that don’t have them. As a result, it’s the responsibility of every merchant to ensure they have a robust chargeback monitoring and response framework in place so that every dispute can be answered on-time and with the necessary documentation to put up a strong defense. 

At BAMS, we understand that most merchants want to keep up with that responsibility, but it can be a big job. That’s why we offer our Chargeback Defense program – a complete suite of tools designed to help BAMS merchants successfully resolve every dispute possible, as quickly and efficiently as they can. Our tools include real-time dispute notifications, online dispute management, cardholder verification tools like Verified by Visa, and access to the Cardholder Dispute Resolution Network through our partnership with Verifi. 

For more information on how the BAMS Chargeback Defense program can help your business minimize the negative consequences of lost disputes, speak to a member of our team or request your free five step price comparison.