How Do Chargebacks and Refunds Affect Your Business?

Chargebacks and refunds can take a heavy toll on small and mid-sized businesses. Even if you win a chargeback dispute and have your profits returned to you, you lose valuable time and resources in the dispute process itself. Winning also doesn’t improve your standing in the eyes of your bank. Chargebacks, whether legitimate or not, put your merchant account in jeopardy. Here’s how.

Suffer death by a thousand fees

Chargebacks means fees for merchants. The least amount that you’ll lose is $20, but the fees can go much higher. Even if a customer later realizes the error of her ways and cancels the chargeback, those fees are lost as well as the administrative costs you’ll have to contend with. The paperwork alone for one, single chargeback can take hours to complete, and when you own your own business, time is money.

Lose your merchandise

Some sly fraudsters have begun to use chargebacks as a way to spend their money and keep it too. This is especially common in online purchases when customers claim they never received merchandise and file a chargeback. In these cases, the customer gets their money back and she gets to keep the goods. That means your business loses the revenue of the purchase, the fees associated with the chargeback, and the valuable merchandise.

Find yourself fined

Excessive chargebacks also impact your bank’s bottom line. If your business’ monthly chargebacks exceed the bank’s established threshold, they’ll impose fines against your business to make up for their losses. These fines can be exorbitant with some banks charging thousands of dollar each month.

Feel the chill of a frozen account

Exorbitant chargebacks can also result in a frozen or even terminated merchant account. In that case, you’ve got not way to process credit card payments. While you may be able to find another bank willing to take on your business, you’ll likely find the fees much higher and the paperwork and process of moving to a new merchant account taxing as well. If your account has actually been terminated, you’re placed on the MATCH list, which means that you won’t be able to get a new merchant account with another processor for at least five years.

Found guilty by association

Even if your business isn’t guilty of excessive chargebacks, merely being in a high-risk area, industry, or business model can result in higher processing fees, rolling reserves, or difficulty finding a bank willing to give you a merchant account.

Protect your business by planning ahead and partnering with professionals

Chargebacks are scary business for merchants. They have the power to impact your bottom line even when they’re entirely unjustified. Fortunately, there are ways to reduce the damages caused by chargebacks, chief among them being to reduce the occurence of actual chargebacks.

Partnering with Precision Payment Systems is another way to stop on top of potential payment processing problems. Our exclusive portfolio of trusted payment processors and top of the line customer service helps business owners just like you save time and smooth out your payment process.