Chargebacks FAQ

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If you've received a chargeback notice or debit to your bank account, do not issue a refund to your customer! Money has already been withdrawn from your bank account for the purpose of refunding your customer. If you want to reflect that a chargeback has been filed in your software, click here for instructions.

A chargeback is the reversal of a sales transaction initiated by your client through their card-issuing bank, in which the amount of the transaction is automatically deducted from your account. This is different but related to a retrieval, which you can learn more about here.

Chargeback notices are time sensitive and should be addressed as soon as possible. 


Why and how does a merchant receive a chargeback?

By law, a cardholder has two years from the date of service to dispute a charge. Most issuing banks have a policy against handling disputes that are more than 6 months old, but a cardholder may challenge the policy.

Chargebacks are not shown in your software, you will receive chargeback notices via mail or email, depending on how you requested to receive this information in your merchant account application. If you update your physical or email address, please take care to update this information with your processor to ensure that you are receiving your chargeback notifications.

Reasons for a chargeback

Your client may issue a chargeback for any of the following reasons:

  1. Fraudulent Transactions: Your client’s credit card is charged without the authorization or consent of the cardholder.
  2. Credit Not Processed: Your client requested a return but their card was not refunded.
  3. Item Not Received: Your client did not receive the item which they paid for by credit card.

These are the 3 main reasons for chargebacks. There are a few more detailed reasons, which can be attributed to situations such as faulty cards and human errors made during the payment process. These cases, however, may be beyond your control as a merchant.

The chargeback process

Here is what you can expect when a chargeback is filed against you by a cardholder:

  1. The cardholder files a complaint by contacting their card-issuing bank.
  2. The card-issuing bank investigates the dispute.
  3. Once the card-issuing bank identifies the transaction in question, a provisional credit is provided to the cardholder and the funds are deducted from your bank account (chargeback amount + fee).
  4. Documentation will be sent to you in the mail, and sometimes via email, as well.
    • You may refute the chargeback by submitting proof of the validity of the charge.
    • If the documentation provided is satisfactory to the cardholder's bank, the chargeback credit will be reversed and your client will be charged. The funds will then be deposited back into your bank account (minus chargeback fees).
    • If the documentation is unsatisfactory, the provisional credit provided to the cardholder will become permanent.

Identifying and contacting your chargeback client

The name of the customer who filed the chargeback will not appear on the notice, but you can easily connect a complaint with a client by matching the account information on the chargeback with a transaction in your site from the Settled Transactions screen
  • When you are in the Settled Transactions screen, switch to detail view and place the last four digits of the credit card number in the search cc/ach field.
  • Dates are not important, as it will search the entire history for that card.
  • You can then cross reference the dates to obtain the client name.

Reaching out to your client to resolve their complaint is advised. This will allow you to clarify their issue and possibly resolve the problem directly. It may also give you insight into a policy you may need to reconsider. Cardholders are able to contact their bank to request the chargeback be dropped as well. Having a conversation with them might help them reconsider the dispute. Some cardholders don't even realize a chargeback has been filed on their behalf by their bank.

Tips for preventing chargebacks

  • Ensure the name that appears on your client's bank statement is the name they see when they walk into your business.
  • When creating contracts, keep the signed contract and take an imprint of the physical card.
  • Obtain signed sales receipts that clearly state your refund policy.
  • Always inspect the card and keep the card throughout the transaction.
  • Check your client's photo ID.
  • Never accept a card that appears to have been altered.
  • When keying in a transaction, fill in as much information as possible: Name on card, Billing address, CVV2/CVC2/CID code.
  • If you receive a “Call Center” or “Pick Up Card” decline message, call the authorization center (# on the back of the card) and follow their instructions.
  • If you receive a “Do Not Honor” or any decline message, do not proceed with the transaction until the client has contacted their card issuing bank. There is no protection for a transaction after you have received a decline message, even if you receive an approval code on the second attempt.
  • Remember, although an approval is required on all transactions, it does not guarantee that it is a valid purchase made by the legitimate cardholder. An approval code only means that the account is open and has the available funds at the time, but is not a guarantee of payment.
  • Review all purchases made online, watch for customers who:
    • Place orders that are larger than normal when you are not familiar with the customer
    • Purchase several of the same item or a very expensive item
    • Purchase a lot of items without regard to size, color, or price

Code 10 Authorization

If you are concerned a sale you are processing could result in a chargeback and the customer is in front of you, then call your processor and ask for a “Code 10 Authorization."

A “Code 10” is a universal measure that provides merchants with a method to alert the processor that a suspicious transaction is occurring. The Code 10 operator asks a series of questions that can be answered with “yes” or “no” responses; follow the operator’s instructions to avoid incident with the suspicious cardholder.

Contact your credit card processor for more information how to get in touch with your authorization center.





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