Debt Collection for Chargebacks: How to Reduce Losses in E-Commerce

The unexpected craziness of 2020 has taken its toll on businesses in so many ways. One important problem e-commerce retailers have is increased chargebacks.

Chargebacks bring with them reduced revenue, penalties and damaged reputation that hurt your business. According to Juniper Research, “Online sellers will lose $130 billion dollars to online payment fraud between 2018 and 2023.”

To make matters worse, banks often side with consumers, so there’s no way to fight them. Frustrating, right?

You shouldn’t be penalized for being a responsible business.

Yet, chargebacks are on the rise, especially with the increase in online shopping due to the 2020 COVID-19 pandemic.

The 2020 Fraud and Payments Survey tells us that chargebacks are “up 41% since the start of the pandemic.”

So how can you reduce losses from chargebacks to grow your business?

Let’s explore.

What Are Chargebacks?

Chargebacks occur when a customer reverses a legitimate purchase on their credit or debit card and has the money refunded for a product/service they have received/used. This practice is also known as Friendly Fraud, although it isn’t a very friendly thing to do.

What’s even worse is that banks will almost always side with the consumer. They don’t have the manpower or time to do the research necessary to determine if the chargeback is legitimate or fraudulent.

Now, in all honesty, some consumers do this with no ill intention. They don’t realize what they are doing will affect the company, they just want to:

• Get money back for a service they no longer need.
• Ensure they get a refund for a defective or otherwise unwanted product.
• End a subscription they are no longer interested in.

These consumers simply think that getting a refund directly from the bank is the most efficient way to have their money returned to them. They have no idea the repercussions it has on the business.

Others, however, know exactly what they are doing.  They purchase a product or service, and at some point, after delivery, call their bank and dispute the charge. They have no intention of returning the product/service, they just don’t want to pay for it.

How Do Chargebacks Affect Your Business?

Here’s how:

• Shipping costs are lost.

Once an item is shipped, that money can’t be recovered.

• Chargeback costs are levied.

Again, unrecoverable money out of your pocket. Let’s say you’re lucky enough to dispute the chargeback and win. You still can’t recover    the bank fees.

• Your processing rates rise, if you keep your merchant account at all.

If your chargebacks increase, your processing rates will likely go up. That is if you don’t lose your account entirely. At that point you’re left with the task of finding a processor that will work with “high-risk” clients. And that will cost you a pretty penny.

All these costs add up to a significant loss for your business.

According to the MRC Global Fraud Survey for every $1 of fraud from chargebacks, ecommerce businesses lose an extra $2.94. And with a not-so-gradual increase in the frequency of chargebacks, those costs are becoming more and more of an issue for your revenue potential.

How Can You Prevent Chargeback Losses?

There is no reason to let friendly fraud hurt your business. You need to focus on the important things: providing quality products and services to your loyal customers. They are the bread and butter of your company and deserve your attention.

There are ways to help prevent chargebacks without having to hire a collection agency.

• Make sure your merchant descriptor is easy to recognize.

Many times, the charge the customer sees doesn’t look like something they have purchased. Be sure your descriptor has something like your business name, so they will recognize it.

• Make your refund policy very clear.

This part needs to be crystal clear so there is no way the customer doesn’t understand. And make sure it’s visible on the invoice. Many people don’t read fine print.

• If the charge is recurring, let the customer know that it is about to be deducted.

This gives the customer a head’s up and time to contact you to cancel if they no longer want the service.

• Make sure your Customer Service department is well-functioning.

If a customer can’t get in touch with you because they spend too much time on hold or no one answers the phone, they will likely chargeback. Have enough people on board to have calls and emails answered quickly and effectively.

Recovering Chargebacks Through Debt Collection

There is always the option to hire a collection agency to help you recover from chargeback trouble. An agency can help you in a few ways:

• Educate customers about chargebacks

Because banks automatically accept chargebacks in most cases, customers think they don’t owe anything. Whether or not your customers understand what they’ve done, an agency can help your customers acknowledge their financial responsibility by educating them about the chargeback process.

• Diplomatically resolve disputes

Often chargebacks are due to simple misunderstandings. Chargeback debt collection agents are skilled at resolving disputes and getting your customers to pay back what they owe. They help your customer understand the proper way to submit disputes so that they don’t keep penalizing your business with chargebacks.

• Recover otherwise lost funds

Sometimes money is recovered faster if the request comes from a third-party collection agency. Plus, with “no win, no fee” rates, there’s no cost unless you collect.

Want Someone Else to Handle It?

If that’s the option you choose, Cedar Financial has the skills needed to boost your declining profit margin.

With over 30 years of experience and an omni-channel contact center, you can rest assured you will recover as much from your chargebacks as possible.

Let Cedar Financial do the collecting while you enjoy growing your business.

*The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.