Chargebacks

How do you protect yourself?

[Rollo]

Scenario:

We receive a credit card order for a service of say, $25,000 USD. It costs us $20,000 to provide the service and in order to do so, we must forward the $20,000 immediately to a third party. So, we've made $5,000 on the transaction.

Then the cleint chargesback (perhaps before, perhaps after utilizing the service). We can't get the $20,000 back.

What steps can be taken to minimize this risk outside a written contract. Unfortunatley, written contracts mean nothing internationally becuase of the cost of enforcing them.

[ogletree]

From what I remember if you have a signed contract that is all you need to prove to Visa that the client did make that purchase. They can only do a chargeback if you can't prove they made the charge. If you can prove they made the charge visa will not give them the money back. I would call the company where you have your mercahant account and ask them what are your options.

[Rollo]

That's what I was hoping. In fact, I just introduced a no-chargback clause with penalties for doing so. Now I just need to figure out a way to make sure that the contract is enforcable and that the signatories are who they say they are. The ptential for fraud is pretty big in this business. I ask for a copy of a photo ID and try to verify the signiture, but that's about all I can do.

[ogletree]

Don't worry about sueing what you need to get clear is what visa/MC is going to do. Get it very clear with them what you need to do to guarantee no chargvebacks. There has to be a way to guarantee no chargebacks. (ie more loops for the purchaser to jump through.

[Rollo]

I'm hoping to strike an optimal balance between security and hoops. Too many hoops and customers change their minds or things come up and they back out, unfortunatley.

I'm hesitant to ask for notarized signitures as it's sort of off-putting to clients as the clientele for this particular business tend to be wealthy and rather full of themselves. Thankfully, I've never had a test case, but I assume unless outright fraud occurs (i.e. stolen identity), a signed contract with a "no chargebacks" clause and a defined jurisdiction should do the trick.

I wonder if there is insurance we could pick up to cover us in the event of credit card fraud?

[ogletree]

Don't sell anything to lawyers they back out of contracts all the time.

[Rollo]

I heard that

[andye]

One solution, if we're talking about high payment values: don't accept credit card payments, use international bank transfer instead. That way, once the money's paid, it stays paid.

hth, a.

[Corey Bryant]

There is a company that will buy yourr chargebacks if they are not fraudulent - crbcompany.com (no relation)

You have to re-do your TOS on it to charge a few things around though (in order to get your money back completely: www.small-business-forum.com/articles/52.html

-Corey

[lgn1]

Wouldn't it be against your merchant agreement, to go after chargebacks via a collection agency.

After all, doesn't the Credit Card company determine if the charge back is valid or not, and rules in one party favor or the other.

Going after a chargeback thru a collection agency that has been ruled in the customers favors, just sounds like a legal nightmare to me.

The best thing is to tighen your TOS so most non-fraudulent chargebacks are ruled in your favor, in the first place.

[Corey Bryant]

Depends on your terms of service and your merchant account agreement. For the most part, a lot of issuing banks are just trying to keep their customer happy. You, as the merchant, are not a customer of theirs so they do not care.

As long as the credit card charge was not fraudulent you should be fine. You as the merchant provided the service / product to the consumer, so why shouldn't you be paid? Just because the issuing bank decided that the user did not get something, why should you be penalized?

-Corey

[wrockca]

good point andye, we do that with large wholesale orders. Its a pain but its worth it...

Thats a ton of money and you only make a small chunk. ACH transfers works well

[lgn1]

For the most part, a lot of issuing banks are just trying to keep their customer happy

I hope this is not the case, and that the bank is totally impartial when determining non-fraud charge back cases.

If they were not impartial, they can be setting themselves up for a large legal liability, especially if it goes class action.

The credit card companies have all ready got themselves in trouble a few times, and had to pay out large sums of money, due to unethical practices, in the past few years.

[LifeinAsia]

Sometimes it's not the merchant bank that allows the chargeback, but actually the credit card company. Visa has a lot of hoops to jump through if you take payments over the Internet.

We've had problems disputing chargebacks, even though we have a check-in card from the hotel (we're an online reservation company) signed by the customer showing that he actually DID stay for the reservation for which we charged. Our merchant account provider said Visa woudl kick it back to them and charge secondary chargeback fees unless we provided a signed letter from the customer saying he made a mistake in his original dispute!

[lgn1]

I agree, their is two many players in the Credit Card dispute process.

It would be nice if a single authority (clearing house), is setup to arbitrate and make a binding decission on charge back issues.