Specialty Items Can be a Great Revenue Stream, But Custom Order Chargebacks Pose Unique Risks
As a merchant, you have real incentives to offer special orders.
Beyond the fact that special orders can account for between 21% and 39% of sales, custom jobs can also engender greater customer loyalty, which can lift average order values (AOVs) and encourage repeat buyers. After all, you made it just for them. Why do buyers need to go anywhere else?
Unfortunately, bespoke orders can’t always overcome genuine misunderstandings or, worse, ill intent. Not all customers are going to be satisfied with their special orders, and some may misuse the chargeback process to try and get their money back. Other customers-turned-fraudsters are straight up malicious; they may file fraudulent chargebacks in the hopes of getting custom items for free.
Regardless of the intent, special order chargebacks can dent your top and bottom lines, as I’ll explain in a little more detail below.
Recommended reading
- What is the Zelle Dispute Process? What Should Victims Do?
- Venmo Chargebacks: How Do Disputes Work on Venmo?
- Bank of America Disputes: Here's What You Need to Know
- Home Decor Chargebacks: Why They Happen & How to Prevent
- Kiss Dating Site Chargebacks “Goodbye!” With These Key Tips
- Crypto Chargebacks: Are Crypto Payments Reversible?
What is a Custom Order Chargeback?
A special order chargeback happens when a cardholder pays for a custom order using a debit or credit card, then disputes it with their issuing bank after receiving their bespoke order.
Anytime an order is tailored to a buyer’s preferences, there’s a chance the buyer won’t like it. Maybe the size of their tailored shirts isn’t what they wanted. Or, maybe the decoration on top of their custom-ordered cake doesn’t meet their expectations. While discontent with a custom order can easily be remedied by a discount or refund rather than a chargeback, many buyers don’t know the difference.
Even cardholders who are fully aware of how chargebacks and refunds differ may not want to go through the perceived hassle of asking for their money back. Skipping to a chargeback without contacting you violates card network rules. Regardless, data from the 2024 Chargeback Field Report reveals that 53% of survey cardholders admitted to disputing a charge without first attempting to contact the merchant.
If you’re not given the chance to make things right, then you could be left to field chargebacks due to highly subjective complaints. These can elevate your chargeback ratio, cause you to incur chargeback fees, and place you at risk of other penalties like account closure or even industry-wide blacklisting.
Why Do Custom Order Chargebacks Happen?
Most disputes associated with custom orders involve a subjective, rather than objective claim. That makes them much more difficult to disprove.
Custom orders are at particular risk of chargebacks because they’re easy to dispute.
When a buyer wants to dispute a transaction, they can only do so for one of a few valid reasons: like merchant billing errors, fulfillment errors, or third-party fraud. That said, complaining that the item was not as described, or didn’t match the quality promised, is also an acceptable reason for a chargeback. And, that tends to cause a lot of problems when it comes to personalized items.
Disputes concerning incorrect orders are nothing new. For example, it’s not uncommon for apparel merchants to receive disputes from cardholders alleging that they received merchandise in the wrong color or size.
The problem with custom orders is that “item not as described” claims become much easier to levy and, at the same time, much more difficult to disprove. Even if the buyer provided vague or misleading instructions about their custom order, the cardholder’s issuing bank — out of a desire to keep them happy — is likely to take their side.
At the same time, it is exceedingly difficult for merchants to furnish evidence that is compelling enough to counter these claims. A dispute involving a wrong color or size claim for non-customized apparel can be disproved by bright-line evidence to the contrary. But, dissatisfaction surrounding custom orders is largely subjective, abstract, and nebulous, making it hard to combat with clear-cut evidence.
Why Are Special Order Chargebacks Harmful to Merchants?
In addition to typical costs associated with chargebacks, disputes involving specialty orders will cost more because custom items usually cost more to produce.
One common (but mistaken) conception is that bespoke order chargebacks are harmful because the custom inventory essentially becomes deadstock.
Custom inventory is difficult to resell. But, the fact of the matter is that buyers rarely return merchandise after a chargeback anyway. The real harm of a custom order chargeback comes from the fact that non-standard orders often cost you more to produce.
Special-order materials, design work, and the overhead costs of communicating back and forth with the customer don’t come free. When a chargeback on a custom order happens, all of those upfront costs that were invested in the production of the order are lost. Rather than completing a larger (and potentially more profitable) sale, you’re instead left to eat the cost of the custom job.
That’s on top of all the other costs associated with a typical chargeback, including (but not limited to):
- The chargeback fee assessed by your processor to cover their costs
- Lost overhead costs associated with shipping and fulfillment
- Higher processing costs due to elevated chargeback risk
- The threat to your long-term viability if your account gets frozen or canceled
Although a strict refund policy may seem like a protective measure, simply refusing refunds for special orders isn’t going to stop disgruntled customers from trying to get their money back. They may instead turn to committing return fraud or friendly fraud.
How to Fight Special Order Chargebacks
You need to provide evidence to respond to a chargeback on a custom product. Examples of acceptable documentation may include customer approvals, pictures of the item in question, and delivery confirmation.
Custom order chargebacks are often about subjective quality, rather than your failure to deliver. So, your evidence must be overwhelmingly specific, and must show that you delivered exactly what the customer explicitly requested.
The strongest evidence against invalid special order chargebacks includes:
How to Prevent Special Order Chargebacks
Prevention is always cheaper than representment. For special orders, this means managing risk before you ever start production. Below, I’ve shared a few tactics for spotting (and blocking) high-risk customers:
Look Out for Pushy, Problem Clients
Not all customers are a good fit for custom work. Be wary of clients who may be problematic. This includes extreme urgency, vague or contradictory specifications, or an unwillingness to engage in the approval process.
Just think: do I really want to deal with this person? In general, a prospective customer who is impatient or combative as early as the initial discovery process could be a massive chargeback risk.
Implement a Client Screening Questionnaire
Don’t start fulfilling custom orders until you have a client screening questionnaire. This document should formalize the intake process and enable you to collect standardized, specific information about the client’s wants in terms of materials, dimensions, and color.
It’s also a good idea to ask whether a client has ever commissioned custom work before. Their answers can reveal their experience level or potential points of friction, which can allow you to proactively manage expectations.
Require an Initial Deposit for All Custom Work
Custom orders require upfront time, labor, and planning on your part. When designing your fee structure, account for these costs by charging an upfront, non-refundable deposit for all custom orders.
This is a good practice for a few reasons. First, it weeds out customers who aren’t serious about placing a bespoke order. Second, you can pair it with a lock in period; for example, by specifying that all order details are final 24–48 hours after a buyer puts down a deposit. This prevents last-minute change requests and helps both you and the customer settle on a fixed scope of work.
Don’t Feel Pressured to Accept All Custom Orders
You want to make money, of course. But, remember that not all dollars are worth earning. If a potential client raises multiple red flags, you’ll at most earn a sale that isn’t worth the hassle… and at worst, incur a future chargeback.
Remember, a chargeback is a triple whammy: you lose out on revenue, the full cost of production, and you get hit with a chargeback fee. Refusing to take on one (or even several) custom orders is always better than losing even a single costly chargeback.
Stay Positive
It will be difficult to please some customers, no matter how hard you try. However, with exceptional customer service, attention to detail, and professional guidance, you stand a much better chance of preventing chargebacks for special orders.
If your business specializes in custom merchandise, contact us today. We can help you craft business policies and customer service norms that reduce the risk of chargebacks.
FAQs
How to win a “product unacceptable” chargeback?
To counter unacceptable product or service claims, you’ll need compelling evidence that the customer was satisfied with their purchase. This can include sign-offs or approvals for custom orders, signatures confirming acceptance at delivery, or public reviews — ideally positive ones — posted by the cardholder.
Can you sue someone for a false chargeback?
You can technically sue anyone for anything, but you’re likely to face an uphill battle if your lawsuit concerns a false chargeback claim. Add in the time and expense of litigation, and a lawsuit is likely a losing proposition for all parties involved.
What evidence helps win a chargeback?
Proof of purchase in the form of purchase orders, invoices, and receipts, can help both cardholders and merchants win chargebacks. Copies of order tracking emails, delivery confirmations, and pictures of the inventory shipped can also be used to fight and win chargebacks.
How likely is it to win a chargeback?
Cardholders are more likely than merchants to win chargebacks. According to the 2024 Chargeback Field Report, merchants win, on average, about 45% of the chargebacks they re-present (and just 18% of all chargebacks filed in total).
