Chargeback Policy

September 22, 2021 | 9 min read

How A Stronger Chargeback Policy Can Help Eliminate Disputes

You know that chargebacks are both a threat and a huge hassle, but you might be surprised to learn how many customer disputes could actually start with you. In fact, studies show that a large portion of chargebacks are the result of merchant errors tied to a chargeback policy that is too vague, too strict, or too confusing.

When it comes to prevention, one of the best things you can do is create solid chargeback policies. Well-crafted policies can be effective fraud deterrents. And, if done correctly, they can also help you recover your money after a chargeback gets filed.

In this post, we’ll explain what a merchant chargeback policy is, and how your other policies regarding processes like shipping and returns should influence your chargeback policy. We’ll also offer some guidance on how to optimize these processes to help “chargeback-proof” your business.

What Is a Chargeback Policy?

The term “chargeback policy” can be confusing because, like most merchants, you probably don’t have a formal, official policy. We want to look at the matter a little more broadly, though. We want you to think about how you outline your whole chargeback management philosophy.

Your chargeback policies explain in detail the conditions under which chargebacks can be filed…and situations where they are not warranted. While many merchants don’t have an official policy, just having clear chargeback terms and conditions can help you combat illegitimate customer disputes. That said, the ideal is to prevent chargebacks from happening in the first place. Having other, more customer-centric policies in place can help do that.

By “customer-centric,” we’re talking about the policies that are of most interest to a shopper. Specifically, we mean terms and conditions concerning returns, shipping, and cancellations for recurring payments. In this context, the best policies boil down to three basic tenets:

  • Keep it clear: Policies must be written in the most clear, understandable, and concise language possible.
  • Keep it simple: Policies should be strong and straightforward (but flexible enough to cover unique situations).
  • Promote it everywhere: Policies must be blatantly available to customers anywhere they might expect to find it.

The stance you take on chargebacks may require some experimentation. On one hand, many merchants do nothing to recover lost revenue. They simply accept disputes as a cost of doing business.

That’s not good. However, an approach that’s too aggressive can cause problems as well. One the most severe examples of this came from the Sony PlayStation Network. The contract to join the network specifically states that any gamer disputing a charge on their account is automatically banned from the network. Thus, the player forfeits any games already purchased through the service.

Sony’s chargeback policy might make sense in terms of stopping repeat offenders. However, the policy created a backlash against the company, as it impacted some users with valid reasons for filing a dispute.

Are You Causing Your Own Chargebacks?

Those seemingly minor policy missteps could cost you more than you think. Click to learn more.


Chargebacks Policies: Returns

Your products may be great. Your customer service may be outstanding. However, even with airtight policies, every business is subject to the occasional return. Online businesses are especially susceptible because customers can’t interact with the merchandise before they buy.

No merchant likes to deal with refunds. Making your return process more complex won't stop them, though. More likely, buyers will simply skip your customer service department and file a chargeback. In contrast, a clear, simple, and easy-to-understand eCommerce refund policy says you stand behind your product and want your customers to be satisfied.

Furthermore, your return policy can have a powerful impact on sales. How powerful? Look at these statistics from a recent report on product returns.

  • 67% of shoppers will check your return policy before purchasing
  • 92% of buyers will purchase again if returns are easy
  • 27% say they’re willing to purchase items costing $1000 or more if no-cost shipping is offered

It’s not practical to accept any and all returned merchandise. The more flexible your return policy, though, the lower the risk of chargebacks. If your restrictive policies disqualify a traditional refund, the customer is more prone to commit friendly fraud.

Here are some suggestions for a strong, viable return policy:

  • Explain Refund Options: State refund options right up front. Is a receipt required? Are returns limited to exchanges or store credit? Do refunds go directly back to the buyer’s credit card account?
  • Cover the Return Shipping: Charging customers for return shipments seems to make financial sense. However, nearly 80% of shoppers say they specifically look for merchants who offer free return shipping.
  • State Fees Up Front: If you must charge consumers for return shipping or restocking costs, be sure they understand those conditions clearly before the sale ever happens.
  • Open Return Windows: Limited return windows are fine, but consider exceptions under certain conditions, such as extended return timeframes during the holiday season.
  • Make It Speedy: Acknowledge return requests and process the return as quickly as possible. Be sure to advise the cardholder when you send the refund and follow up to make sure it was received.
  • “All Sales Are Final” Policy: In some situations, such as sales of intimate apparel, it may be necessary to prohibit all returns. If the sale is “Final,” clearly post this, preferably on your check-out page.

Chargebacks Policies: Shipping

Shipping terms and conditions can also have a huge impact on chargebacks. As with returns, the more concise, clear, and flexible your shipping policy is, the fewer chargebacks you’re likely to see.

Amazon, Walmart, and other eCommerce giants typically offer some level of free shipping…to the point where customers now expect it from all merchants. That may be difficult for smaller businesses, but it can be a great way to convince customers to buy.

Here are other key things to remember when creating a shipping policy:

  • Provide Options: Whether or not you offer free shipping, you should provide multiple delivery options, such as expedited shipping. Be sure to include pricing and cutoff­ times for each.
  • Plan For Flexibility: If shipping may take longer than industry standards, post that information on the checkout page. Adapt to special circumstances, such as allowing extra time for holiday delivery.
  • Track Orders: Send an email when the order is actually en route. Include tracking number and estimated delivery date. Update at other stages of the shipping process as appropriate.
  • Notify Of Delays: If an item is unavailable or on backorder, tell the customer as quickly as possible. Give them the opportunity to either cancel the order or wait for its delayed arrival.
  • Use Delivery Confirmation: Knowing that you plan to confirm orders may help prevent friendly fraud. Particularly for expensive items, a signature should be required.

Chargebacks Policies: Cancellation

A recurring payments (subscription) business model o­ffers benefits for both merchants and customers. On the merchant side, it creates a more predictable cash flow and lowers the risk of merchant error. At the same time, customers enjoy the convenience of automatic billing.

Recurring payments, however, are considered a “high-risk” factor. A cancellation policy that’s too-strict can add to that. It sounds counterintuitive, but terms and conditions that allow for easy cancellation may actually help convince customers to sign on:

  • Be Transparent: To avoid misunderstandings, start at the very beginning. Clearly state the fees and terms of service up front, before processing the initial transaction.
  • Explain Payments: Let the cardholder know when the credit card will be charged. Explain any additional fees or restrictions, including taxes and early termination fees.
  • Time Limits: How long is the contract for? Is it self-renewing? Lay out the timing in your terms. Make it a policy to give advance notice before each payment.
  • Make Cancelling Easy: Make your cancellation process clear, simple, and easy to navigate. Make cancelling easier than calling the bank: a one-step online “unsubscribe” button is ideal.
  • Offer “No Strings Attached” Cancelations: The fewer conditions attached to your policy, the better. Allow subscribers to end the contract “no questions asked.” Process cancelation requests as quickly as possible.
  • Be Clear About Rate Changes: If there will be a change in the payment rate, give the customer ample advance warning. Allow cancellation if the subscriber wishes to unsubscribe due to the price increase.

Getting Professional Assistance

Creating strong eCommerce chargeback policies can seem pretty straightforward. There are certain “tricks of the trade” that may not occur to you, though. Professionals are more likely to have the experience to make your policies as chargeback-proof as possible.

Chargebacks911® can help you create and implement sound chargeback terms and conditions, tailored to your unique needs. In addition, we can offer ongoing support for all aspects of chargeback management. We can take chargebacks completely off your plate and up your ROI. For more information, contact us today.


What are eCommerce chargeback policies?

An actual chargeback policy outlines a merchant’s management philosophy and the standards for preventing and contesting chargebacks. The term is also collectively used to refer to other merchant policies such as shipping and returns, which can be intentionally written to discourage chargebacks.

Why are these policies important for preventing chargebacks?

Shipping, return, and cancellation policies impact customers directly. For example, if a return policy is not abundantly clear, a shopper may have unrealistic expectations about refund options. They may feel they have been duped by not understanding terms up front, which can easily lead to chargebacks.

What are the elements of a “chargeback-proof” policy?

The basic tenets include: keeping the polices as simple, concise, and understandable as possible, and posting policies (or at least links to the policy) prominently in multiple places, including web pages, email communications, and receipts.

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