Chargeback PolicyWhy You Need One & How to Get Started

May 16, 2023 | 15 min read

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Chargeback Policy

In a Nutshell

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.

10 Tips for a More Effective Chargeback Policy

Chargebacks are both a threat and a hassle. You know that already. However, you might be surprised to learn how many customer disputes actually start with you.

Our recently published Chargeback Field Report found that errors in merchant policies remain a leading cause of chargebacks. These are often tied to policies that are too vague, too strict, or too confusing.

When it comes to dispute prevention, one of the best things you can do is create solid policies regarding refunds, shipping… and yes, chargebacks.

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. How does that work, though? What do you need to include in your policies to help deter fraud and chargebacks? Let’s find out.

What is a Chargeback Policy?

The term “chargeback policy” can be confusing because, as a merchant, you don’t actually have any say regarding whether a chargeback gets filed, or how it happens. Some merchants believe there’s a magic disclaimer they can slip into their terms and conditions that will prevent customers from disputing transactions. This is not the case, though.

That’s not to say you shouldn’t include language about chargebacks in your terms and conditions. It can be helpful to outline the conditions under which chargebacks can be filed, and the situations in which chargebacks are not warranted. You can also outline how you will respond to chargebacks.


“Chargeback policy” can refer to any language embedded in your terms and conditions which outlines when chargebacks are acceptable, as well as how you’ll respond to chargebacks.

This won’t reliably “stop” chargebacks. That said, discussing proper use of chargebacks in your terms and conditions may divert some buyers away from disputes and toward proper channels. 

We also want to look at the matter a little more broadly. We want you to think about how you outline your whole chargeback management philosophy, and how policies influence — and are influenced by — this process. The ideal is to prevent chargebacks from happening in the first place, and implementing customer-centric dispute policies can help you get there.

Can your policies stand up against common triggers of fist-party chargeback misuse?REQUEST A DEMO

What Should a Chargeback Policy Entail?

A well-rounded chargeback prevention policy is one that:

  • Is customer-centric
  • Outlines common points of friction (returns, shipping, order cancellation, etc.)
  • Explains the circumstances under which chargebacks are acceptable
  • Provides customers with alternatives to a chargeback
  • Explains how you will respond to any disputes filed against you

By “customer-centric,” we’re talking about the policies that are of most interest to a shopper. It should also be simple, and in plain language that average customers can understand. 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.

Now, let’s go through each element of a good chargeback policy — returns, shipping, cancellation, alternatives, and responses — and explore how you can optimize your rulesets.

Chargebacks Policies: Returns

Nobody likes to deal with refunds. Making your return process more complex won't stop them, though. Buyers will simply skip your customer service department and file a chargeback. That said, it’s not practical to accept any and all returned merchandise. 

A clear, simple, and easy-to-understand eCommerce return policy says you stand behind your product and want your customers to be satisfied. The more flexible your return policy, 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 strong, viable return rules:

Explain Refund Options & Terms

Outline refund options right up front. Also, is a receipt required? Are returns limited to exchanges or store credit? Do refunds go directly back to the buyer’s credit card account? Make sure all this information is explained thoroughly and clearly.

Cover the Return Shipping

Charging customers for return shipments makes financial sense at first glance. 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. For instance, it’s a good idea to extend 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,” then post this information clearly, preferably on both the checkout page, as well as the product page. Ask customers to affirm the purchase before completion.

Did You Know?

Your return policy can have a powerful impact on sales. A recent report on product returns revealed that 67% of shoppers will check your return policy before purchasing. 92% of one-time buyers will make purchases again if returns are easy.

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 free shipping on at least a subset of online purchases. They’ve set an expectation; now, it’s to the point where customers 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 shipping rules as part of a broader anti-chargeback policy set:

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 the tracking number and estimated delivery date. Update at other stages of the shipping process as appropriate.

Notify Buyers About 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.

A solid set of policies might mean the difference between a satisfied customer and a chargeback.REQUEST A DEMO

Chargebacks Policies: Cancellation

A subscription model o­ffers benefits for both merchants and customers. On the merchant side, it creates a more predictable cash flow and lowers the risk of error. At the same time, customers enjoy the convenience of automatic billing and reliable access to products and services they love.

Recurring payments, however, are a “high-risk” factor for chargebacks. 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.

#1 Be Transparent

To avoid misunderstandings, start at the very beginning. Clearly state the fees and terms of service upfront before processing the initial transaction.

#2 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.

#3 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.

#4 Make Canceling Easy

Make your cancellation process clear, simple, and easy to navigate. Make canceling easier than calling the bank: a one-step online “unsubscribe” button is ideal.

#5 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.

#6 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.

Chargeback Policies: Providing Alternatives

This facet of your broader chargeback policy should be one-part education, and one-part special offer.

Educating customers about chargebacks may not be your job per se. But, providing some basic materials about disputes, as well as when they’re appropriate and inappropriate, can help you avoid some disputes.

Customers should be made to understand the difference between returns and chargebacks. They should also be instructed about how chargebacks affect merchants, and the negative consequences of chargeback abuse. Our guide for how to dispute charges is aimed at giving consumers the proper insight to know how to use the chargeback process correctly.

Another option here is to give buyers incentives to make returns through the proper channels. Especially, when those incentives can be mutually beneficial.

One idea is to offer a 10-20% bonus value if customers are willing to accept store credit in place of a cash refund. The customer benefits, because they get more value for their dollar when requesting a return. You benefit, in that you can avoid a dispute, and also, ensure that the customer conducts a secondary purchase to use the credit allotted to them. You recover the initial sale, and also create opportunities for additional sales.

Chargeback Policies: Your Chargeback Response 

Finally, let’s quickly address how you will respond to disputes.

If you believe a dispute was filed without a valid reason, you have the right to fight it through the representment process. This involves resubmitting the transaction, along with evidence and other supporting documentation. It’s a good idea to clarify in your chargeback policies that you will respond to any cases of first-party misuse of the process. You should also clarify any additional consequences that might result from a chargeback.

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. 

On the other hand, an approach that’s too aggressive can cause problems as well. One of 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 or other digital assets 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. It’s a delicate balancing act that you need to strike.

Top 10 Tips for an Effective Chargeback Policy

Remember: a good policy should clearly state your intentions and practices to your customers without being aggressive or condemnatory in any way. So, a good rule of thumb would be to craft a policy that is comprehensive enough to include all of the points above, but also be approachable and easily digestible for your customers. 

But, now that we have a better understanding of what to include in your chargeback policy let’s put them all together. Here are ten tips for a more effective chargeback policy:

Visibility & Clarity are Key

Your chargeback policy must be clear, easily accessible, and visible to customers. This means it should be located in a place on your website or physical store where customers can find it without difficulty. Also, it should be written in a language that is easy for customers to understand. 

Keep in mind the more vague or difficult to locate your policy is, the more issues your customers will have while navigating your policies. 

Detail Terms & Conditions

The chargeback policy should provide a comprehensive explanation of your terms and conditions. The document must spell out what is expected from the customer and the merchant in different scenarios. This will help to prevent any misunderstandings that might lead to chargebacks.

Prioritize Accuracy

The policy should emphasize the importance of keeping accurate records of all transactions, including order confirmations, tracking numbers, delivery receipts, and other relevant documentation. This will serve as evidence in case of a dispute.

Maintain Open Communication

You should ensure open and proactive communication with your customers. If there is an issue with a purchase or a delay in delivery, merchants should communicate this to customers promptly. This open line of communication can help resolve issues before they escalate into chargebacks.

Restate Return Policy

A chargeback policy should clearly articulate your return and refund policies (above). It should explain how customers can return items, what conditions must be met for a return or refund, and the timeframe in which returns or refunds can be made.

Remember, many chargebacks result from complications during the return process. By ensuring that your return policy is duly visible and accessible to your customers, can save you many headaches later on. 

Include Data Security Assurances

Your policy should state that your business adheres to high standards of data security to protect customers' personal and financial information. This assurance can build trust and reduce the likelihood of chargebacks due to unauthorized transactions.

Dispute Resolution Process

Your chargeback policy should detail the process for resolving disputes, including the timeframes, steps involved, and any supporting documentation required. This gives customers a clear path to follow if they have a dispute, potentially avoiding a chargeback situation.

“Zero-Tolerance” for Fraud

The policy should state clearly that you take a zero-tolerance approach to fraud and chargeback abuse. Any consequences of this fraudulent behavior, such as banning the customer from future purchases or reporting the fraud to relevant authorities, should be stated explicitly.

Explain Representment Intentions

In line with the above tip, your policy should outline the steps you will take in response to first-party chargeback misuse. This includes the process of representment, where the merchant presents evidence to the bank to dispute the chargeback. This can help to deter customers from falsely claiming a transaction was unauthorized.

Give Instructions for Support

Lastly, your chargeback policy should include contact information for customer support. This can include phone numbers, email addresses, and hours of operation. This will encourage customers to reach out to the merchant with any issues instead of resorting to a chargeback.

Need Additional Support?

Ultimately, an effective chargeback policy should communicate your intentions, practices, and rights in response to disputes. Having one won’t prevent every chargeback from being filed. But, it will almost certainly help you maintain a lower chargeback ratio moving forward. 

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 return on investment. Continue below and get started today.


What is a chargeback policy?

A chargeback policy should explain, in detail, the conditions under which chargebacks can be filed, plus 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. 

What qualifies for a chargeback?

A chargeback is a credit or debit card charge that is forcibly reversed by an issuing bank. This typically happens after a cardholder claims a transaction was the result of fraud or abuse.

Can a merchant refuse a chargeback?

No. Merchants can challenge illegitimate disputes (with verifiable proof in hand) through a process known as “representment.”

Do merchants ever win chargebacks?

Yes. If the merchant is able to provide compelling evidence of a transaction’s legitimacy to the cardholder’s issuing bank, the merchant may be able to recoup their funds.

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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