How to Reduce Chargebacks

Credit card chargebacks can be a frustrating drain on a business's bottom line. Because they essentially represent a contract between the cardholder and the merchant bank, the seller (you) gets left out in the cold and often has to absorb the additional cost in time and goods lost on top of the chargebacks themselves. You can reduce these costs, however, by handling credit card transactions carefully and sticking to good business practices.

Instructions

Difficulty: Moderate

1. Post a warning. It sounds very simple, but a firm and sternly worded warning on your website will go a long way to reduce the occurrence of chargebacks. State clearly that IP addresses are being logged and that fraudulent orders will be tracked down and prosecuted.
2. Compare the customer's ID or driver's license with the name on the card, along with the expiration date on the credit card. Obviously, you can only do this face to face, but a big way to reduce chargebacks is simply to examine the card carefully and refuse to accept it if anything seems amiss.
3. Check the CV2 numbers on the back of the credit card. It can reduce your chargeback fees by as much as 20 percent simply by weeding out a number of fly-by-night fraudsters.
4. Compare the signature on the back of the credit card with the customer's own signature. Every credit card should be signed in its appropriate spot on the back of the card, and you can insist that your customer has done so or else refuse to accept the card. And you don't need to be a handwriting expert to spot any obvious differences in that signature and the one on the bill.
5. Use an address verification system (AVS), an absolute must if you accept orders online. These systems match the cardholder's address with the address given on the order and informs you if they do not correspond. You reduce both chargebacks and a lot of high processing fees when you use an AVS. Get more information about AVS by visiting Outside the Code (see Resources below).
6. Tell your customers which name will appear on their statements. If you use a name other than your business's title or a name that they do not immediately recognize, they may reverse the charges thinking that it's some kind of fraud. Be very clear about how their bill will be marked, and you'll reduce the number of those chargebacks dramatically.
7. Watch out for orders with email addresses from free services such as Yahoo or Hotmail. It is very easy to falsify information on those services and very tough to track down anyone who uses them. While you shouldn't reject such orders out of hand (many legitimate customers use those services as well), they do bear close attention.
8. Ask for a faxed copy of the credit card and/or driver's license. That gives you a paper trail and can further reduce the chance of fraud, which primer sites such as Website Publishers (see Resources below) emphasize. Be sure to ask for both sides of the credit card on the fax.

Tips & Warnings

• Beware of any orders made from former Eastern Europe countries such as Russia, Bulgaria, the Ukraine and the Baltic States, as well as those from Indonesia, Africa and Southeast Asia. A large portion of fraudulent credit card orders come from those parts of the world.